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Does the Hot Hand Drive the Market? Evidence from College Football Betting Markets

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  • Michael Sinkey

    (Department of Economics, University of West Georgia, 1601 N. Maple Street, Carrollton, GA 30117, USA.)

  • Trevon Logan

    (Ohio State University and NBER, 1945 N. High Street, Columbus, OH 43210, USA)

Abstract

This paper investigates whether market makers rationally price out certain strategies at the expense of leaving other strategies profitable. We examine betting market outcomes in college football from over 14,000 games during 1985–2008. We find that favorites are statistically overpriced while home teams are statistically underpriced. Furthermore, we provide suggestive evidence for why this inefficiency persists: betting houses deliberately inflate the betting lines to account for previous strong performance against the spread, or the “hot hand.” Although eliminating the “hot hand” is rational since betting on “hot” teams is popular, tempering the “hot hand” results in profitable simple betting strategies.

Suggested Citation

  • Michael Sinkey & Trevon Logan, 2014. "Does the Hot Hand Drive the Market? Evidence from College Football Betting Markets," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 40(4), pages 583-603, September.
    • Handle: RePEc:pal:easeco:v:40:y:2014:i:4:p:583-603
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    Cited by:

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    2. Randall W. Bennett, 2019. "Holdover Bias in the College Football Betting Market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 103-110, March.
    3. Daniel F. Stone & Jeremy Arkes, 2018. "March Madness? Underreaction To Hot And Cold Hands In Ncaa Basketball," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1724-1747, July.
    4. Ala Avoyan & Robizon Khubulashvili & Giorgi Mekerishvili, 2020. "Call It a Day: History Dependent Stopping Behavior," CESifo Working Paper Series 8603, CESifo.
    5. Evan Moore & James Francisco, 2019. "Efficiency, Profitability, and College Football: do Bettors Overrate the Major Conferences in Interconference Play?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(2), pages 159-167, June.
    6. James Francisco & Evan Moore, 2019. "Betting with house money: reverse line movement based strategies in college football totals markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(4), pages 813-827, October.
    7. Rodney J. Andrews & Trevon D. Logan & Michael J. Sinkey, 2018. "Identifying Confirmatory Bias in the Field," Journal of Sports Economics, , vol. 19(1), pages 50-81, January.
    8. Justin Cox & Adam L. Schwartz & Bonnie F. Van Ness & Robert A. Van Ness, 2021. "The Predictive Power of College Football Spreads: Regular Season Versus Bowl Games," Journal of Sports Economics, , vol. 22(3), pages 251-273, April.

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