IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v40y2018icp23-39.html
   My bibliography  Save this article

A natural experiment for efficient markets: Information quality and influential agents

Author

Listed:
  • Mills, Brian M.
  • Salaga, Steven

Abstract

We test the integration of repeated decision making of influential agents in asset prices. Our approach exploits a natural experiment in the Major League Baseball (MLB) betting market, where umpire assignments are revealed only for certain games, using over 2.5 million decisions made by these officials. Estimations reveal only partial adjustment to information related to umpire behavioral heterogeneity. We show this is exploitable by informed bettors, providing advantages over more salient, lower quality information. These results suggest that underlying information on influential individual decision making can serve as a high quality indicator of asset values due to persistence across time.

Suggested Citation

  • Mills, Brian M. & Salaga, Steven, 2018. "A natural experiment for efficient markets: Information quality and influential agents," Journal of Financial Markets, Elsevier, vol. 40(C), pages 23-39.
    • Handle: RePEc:eee:finmar:v:40:y:2018:i:c:p:23-39
    DOI: 10.1016/j.finmar.2018.07.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S138641811830079X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.finmar.2018.07.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Raymond Sauer, 2005. "The state of research on markets for sports betting and suggested future directions," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(3), pages 416-426, September.
    2. Karen Croxson & J. James Reade, 2014. "Information and Efficiency: Goal Arrival in Soccer Betting," Economic Journal, Royal Economic Society, vol. 124(575), pages 62-91, March.
    3. Brian M. Mills, 2017. "Policy Changes In Major League Baseball: Improved Agent Behavior And Ancillary Productivity Outcomes," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 1104-1118, April.
    4. Hirshleifer, David & Teoh, Siew Hong, 2003. "Limited attention, information disclosure, and financial reporting," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 337-386, December.
    5. Larsen Tim & Price Joe & Wolfers Justin, 2008. "Racial Bias in the NBA: Implications in Betting Markets," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 4(2), pages 1-21, April.
    6. Smith, Michael A. & Paton, David & Williams, Leighton Vaughan, 2009. "Do bookmakers possess superior skills to bettors in predicting outcomes?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 539-549, August.
    7. Cade Massey & George Wu, 2005. "Detecting Regime Shifts: The Causes of Under- and Overreaction," Management Science, INFORMS, vol. 51(6), pages 932-947, June.
    8. Akbas, Ferhat & Armstrong, Will J. & Sorescu, Sorin & Subrahmanyam, Avanidhar, 2016. "Capital Market Efficiency and Arbitrage Efficacy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(2), pages 387-413, April.
    9. repec:bla:jfinan:v:53:y:1998:i:2:p:673-699 is not listed on IDEAS
    10. David Hirshleifer & Sonya S. Lim & Siew Hong Teoh, 2011. "Limited Investor Attention and Stock Market Misreactions to Accounting Information," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 1(1), pages 35-73.
    11. Daniel L. Chen & Tobias J. Moskowitz & Kelly Shue, 2016. "Decision Making Under the Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1181-1242.
    12. Hakkio, Craig S & Pearce, Douglas K, 1985. "The Reaction of Exchange Rates to Economic News," Economic Inquiry, Western Economic Association International, vol. 23(4), pages 621-636, October.
    13. Marcin Pęski & Juuso Toikka, 2017. "Value of Persistent Information," Econometrica, Econometric Society, vol. 85(6), pages 1921-1948, November.
    14. Brian M. Mills, 2014. "Social Pressure at the Plate: Inequality Aversion, Status, and Mere Exposure," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(6), pages 387-403, September.
    15. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    16. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    17. Allen M. Poteshman, 2001. "Underreaction, Overreaction, and Increasing Misreaction to Information in the Options Market," Journal of Finance, American Finance Association, vol. 56(3), pages 851-876, June.
    18. Vives, Xavier, 1995. "Short-Term Investment and the Informational Efficiency of the Market," The Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 125-160.
    19. Rudiger Dornbusch, 1980. "Exchange Rate Economics: Where Do We Stand?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 143-206.
    20. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    21. Kent Daniel & Sheridan Titman, 2006. "Market Reactions to Tangible and Intangible Information," Journal of Finance, American Finance Association, vol. 61(4), pages 1605-1643, August.
    22. Peng, Lin & Xiong, Wei, 2006. "Investor attention, overconfidence and category learning," Journal of Financial Economics, Elsevier, vol. 80(3), pages 563-602, June.
    23. Markus K. Brunnermeier, 2005. "Information Leakage and Market Efficiency," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 417-457.
    24. Igan, Deniz & Pinheiro, Marcelo & Smith, John, 2015. "A study of a market anomaly: “White Men Can’t Jump”, but would you bet on it?," Journal of Economic Behavior & Organization, Elsevier, vol. 113(C), pages 13-25.
    25. Michaely, Roni & Thaler, Richard H & Womack, Kent L, 1995. "Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?," Journal of Finance, American Finance Association, vol. 50(2), pages 573-608, June.
    26. Gur Huberman & Tomer Regev, 2001. "Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar," Journal of Finance, American Finance Association, vol. 56(1), pages 387-396, February.
    27. Scott Tainsky & Brian M. Mills & Jason A. Winfree, 2015. "Further Examination of Potential Discrimination Among MLB Umpires," Journal of Sports Economics, , vol. 16(4), pages 353-374, May.
    28. Christopher A. Parsons & Johan Sulaeman & Michael C. Yates & Daniel S. Hamermesh, 2011. "Strike Three: Discrimination, Incentives, and Evaluation," American Economic Review, American Economic Association, vol. 101(4), pages 1410-1435, June.
    29. Jerry W. Kim & Brayden G King, 2014. "Seeing Stars: Matthew Effects and Status Bias in Major League Baseball Umpiring," Management Science, INFORMS, vol. 60(11), pages 2619-2644, November.
    30. Chen, Daniel L. & Moskowitz, Tobias J. & Shue, Kelly, 2016. "Decision-Making Under the Gambler’s Fallacy: Evidence From Asylum Courts, Loan Officers, and Baseball Umpires," IAST Working Papers 16-43, Institute for Advanced Study in Toulouse (IAST).
    31. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    32. Berkowitz, Jason P. & Depken, Craig A. & Gandar, John M., 2015. "Information and accuracy in pricing: Evidence from the NCAA men׳s basketball betting market," Journal of Financial Markets, Elsevier, vol. 25(C), pages 16-32.
    33. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 159-178.
    34. Gray, Philip K & Gray, Stephen F, 1997. "Testing Market Efficiency: Evidence from the NFL Sports Betting Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1725-1737, September.
    35. Trick, Michael A. & Yildiz, Hakan, 2012. "Locally Optimized Crossover for the Traveling Umpire Problem," European Journal of Operational Research, Elsevier, vol. 216(2), pages 286-292.
    36. Hardouvelis, Gikas A., 1987. "Macroeconomic information and stock prices," Journal of Economics and Business, Elsevier, vol. 39(2), pages 131-140, May.
    37. Stefano Dellavigna & Joshua M. Pollet, 2009. "Investor Inattention and Friday Earnings Announcements," Journal of Finance, American Finance Association, vol. 64(2), pages 709-749, April.
    38. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    39. Brown, Alasdair & Yang, Fuyu, 2016. "Limited cognition and clustered asset prices: Evidence from betting markets," Journal of Financial Markets, Elsevier, vol. 29(C), pages 27-46.
    40. Sauer, Raymond D & Brajer, Vic & Ferris, Stephen P & Marr, M Wayne, 1988. "Hold Your Bets: Another Look at the Efficiency of the Gambling Market for National Football League Games: Comment," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 206-213, February.
    41. Simon N. Wood, 2003. "Thin plate regression splines," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(1), pages 95-114, February.
    42. Bernard, Vl & Thomas, Jk, 1989. "Post-Earnings-Announcement Drift - Delayed Price Response Or Risk Premium," Journal of Accounting Research, Wiley Blackwell, vol. 27, pages 1-36.
    43. John M. Gandar & Richard A. Zuber & William H. Dare, 2000. "The Search for Informed Traders in the Totals Betting Market for National Basketball Association Games," Journal of Sports Economics, , vol. 1(2), pages 177-186, May.
    44. Simon N. Wood & Yannig Goude & Simon Shaw, 2015. "Generalized additive models for large data sets," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 64(1), pages 139-155, January.
    45. Hirshleifer, David & Hsu, Po-Hsuan & Li, Dongmei, 2013. "Innovative efficiency and stock returns," Journal of Financial Economics, Elsevier, vol. 107(3), pages 632-654.
    46. Braun, Sebastian & Kvasnicka, Michael, 2013. "National Sentiment and Economic Behavior: Evidence From Online Betting on European Football," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(1), pages 45-64.
    47. Rodney J. Paul & Andrew P. Weinbach & Brad Humphreys, 2014. "Bettor Belief in the “Hot Handâ€," Journal of Sports Economics, , vol. 15(6), pages 636-649, December.
    48. Arne Feddersen & Brad R. Humphreys & Brian P. Soebbing, 2017. "Sentiment Bias And Asset Prices: Evidence From Sports Betting Markets And Social Media," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 1119-1129, April.
    49. repec:bla:jfinan:v:44:y:1989:i:4:p:1011-23 is not listed on IDEAS
    50. Brown, Keith C. & Harlow, W. V. & Tinic, Seha M., 1988. "Risk aversion, uncertain information, and market efficiency," Journal of Financial Economics, Elsevier, vol. 22(2), pages 355-385, December.
    51. Dare, William H. & Dennis, Steven A. & Paul, Rodney J., 2015. "Player absence and betting lines in the NBA," Finance Research Letters, Elsevier, vol. 13(C), pages 130-136.
    52. Mills, Brian M., 2017. "Technological innovations in monitoring and evaluation: Evidence of performance impacts among Major League Baseball umpires," Labour Economics, Elsevier, vol. 46(C), pages 189-199.
    53. Andrew Jackson, 2006. "Unifying Underreaction Anomalies," The Journal of Business, University of Chicago Press, vol. 79(1), pages 75-114, January.
    54. Ho, Thomas S. Y. & Michaely, Roni, 1988. "Information Quality and Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(1), pages 53-70, March.
    55. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bouteska, Ahmed & Sharif, Taimur & Abedin, Mohammad Zoynul, 2023. "COVID-19 and stock returns: Evidence from the Markov switching dependence approach," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Jyh-How Huang & Yu-Chia Hsu, 2021. "A Multidisciplinary Perspective on Publicly Available Sports Data in the Era of Big Data: A Scoping Review of the Literature on Major League Baseball," SAGE Open, , vol. 11(4), pages 21582440211, November.
    3. Green, Lawrence & Sung, Ming-Chien & Ma, Tiejun & Johnson, Johnnie E. V., 2019. "To what extent can new web-based technology improve forecasts? Assessing the economic value of information derived from Virtual Globes and its rate of diffusion in a financial market," European Journal of Operational Research, Elsevier, vol. 278(1), pages 226-239.
    4. Finigan, Duncan & Mills, Brian M. & Stone, Daniel F., 2020. "Pulling starters," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 89(C).
    5. Montone, Maurizio, 2021. "Optimal pricing in the online betting market," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 344-363.
    6. Brian P. Soebbing & Pamela Wicker & Daniel Weimar & Johannes Orlowski, 2021. "How do Bookmakers Interpret Running Performance of Teams in Previous Games? Evidence From the Football Bundesliga," Journal of Sports Economics, , vol. 22(3), pages 231-250, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    2. David Hirshleifer & Po-Hsuan Hsu & Dongmei Li, 2018. "Innovative Originality, Profitability, and Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 31(7), pages 2553-2605.
    3. Jiang, George J. & Zhu, Kevin X., 2017. "Information Shocks and Short-Term Market Underreaction," Journal of Financial Economics, Elsevier, vol. 124(1), pages 43-64.
    4. DeLisle, R. Jared & Ferguson, Michael F. & Kassa, Haimanot & Zaynutdinova, Gulnara R., 2021. "Hazard stocks and expected returns," Journal of Banking & Finance, Elsevier, vol. 125(C).
    5. David Hirshleife, 2015. "Behavioral Finance," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 133-159, December.
    6. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    7. Tobias J. Moskowitz, 2021. "Asset Pricing and Sports Betting," Journal of Finance, American Finance Association, vol. 76(6), pages 3153-3209, December.
    8. Hirshleifer, David & Hsu, Po-Hsuan & Li, Dongmei, 2013. "Innovative efficiency and stock returns," Journal of Financial Economics, Elsevier, vol. 107(3), pages 632-654.
    9. Hirshleifer, David & Sheng, Jinfei, 2022. "Macro news and micro news: Complements or substitutes?," Journal of Financial Economics, Elsevier, vol. 145(3), pages 1006-1024.
    10. Lee, Kuan-Hui & Wang, Shu-Feng, 2023. "Allocation of attention and the delayed reaction of stock returns to liquidity shock: Global evidence," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 421-444.
    11. Alwathnani, Abdulaziz M. & Dubofsky, David A. & Al-Zoubi, Haitham A., 2017. "Under-or-overreaction: Market responses to announcements of earnings surprises," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 160-171.
    12. Stefan Nagel, 2013. "Empirical Cross-Sectional Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 167-199, November.
    13. Angelini, Giovanni & De Angelis, Luca & Singleton, Carl, 2022. "Informational efficiency and behaviour within in-play prediction markets," International Journal of Forecasting, Elsevier, vol. 38(1), pages 282-299.
    14. Oh, Jong-Min, 2017. "Absorptive capacity, technology spillovers, and the cross-section of stock returns," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 146-164.
    15. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    16. Deshpande Sameer K. & Wyner Abraham, 2017. "A hierarchical Bayesian model of pitch framing," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 13(3), pages 95-112, September.
    17. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    18. John Charles Bradbury, 2019. "Monitoring and Employee Shirking: Evidence From MLB Umpires," Journal of Sports Economics, , vol. 20(6), pages 850-872, August.
    19. Vozlyublennaia, Nadia, 2014. "Investor attention, index performance, and return predictability," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 17-35.
    20. Choi, Darwin & Hui, Sam K., 2014. "The role of surprise: Understanding overreaction and underreaction to unanticipated events using in-play soccer betting market," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 614-629.

    More about this item

    Keywords

    Market efficiency; Betting markets; Behavior; Baseball;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Z2 - Other Special Topics - - Sports Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:40:y:2018:i:c:p:23-39. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.