Eastern Economic Journal

, Volume 40, Issue 4, pp 583–603 | Cite as

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

  • Michael Sinkey
  • Trevon Logan
Article
First Online:

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.

Keywords

behavioral finance market efficiency hot hand strategic pricing 

JEL Classifications

D03 D83 G14 
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Notes

Acknowledgements

We thank the editor and an anonymous referee for helpful remarks. Andrew Weinbach graciously shared data sources. Dwight Barthelmy, Nathan Fritz-Joseph, Kyle Kain, Michael Kovach, Justin Sawyer, and Christopher Zukauckas provided excellent research assistance. We thank Ben Anderson, Rodney Andrews, Vicki Bogan, Lisa D. Cook, John Gray, P.J. Healy, Pok-Sang Lam, Peter McGee, and Brandon Restrepo for helpful comments and conversations.

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Copyright information

© Eastern Economic Association 2013

Authors and Affiliations

  • Michael Sinkey
    • 1
  • Trevon Logan
    • 2
  1. 1.Department of EconomicsUniversity of West GeorgiaCarrolltonUSA
  2. 2.Ohio State University and NBERColumbusUSA

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