| By: |
Oliver Merz (Department of Business Administration, University of Zurich);
Raphael Flepp (Department of Business Administration, University of Zurich);
Egon Franck (Department of Business Administration, University of Zurich) |
| Abstract: |
This paper examines whether the outcome bias harms price efficiency in betting
exchange markets. In soccer, the match outcome is an unreliable performance
measure, as it underestimates the high level of randomness involved in the
sport. If bettors overestimate the importance of past match outcomes and
underestimate the influence of good or bad luck, we expect less accurate
prices for lucky and unlucky teams. Analyzing over 8,900 soccer matches, we
find evidence that the prices are overstated for previously lucky teams and
understated for previously unlucky teams. Consistent with the outcome bias,
the betting community overestimates the importance of past match outcomes.
Consequently, this bias translates into significantly negative betting returns
on lucky teams and positive betting returns on unlucky teams. Based on this
finding, we propose a simple betting strategy that generates positive returns
in an out-of-sample backtest. |
| Keywords: |
Behavioral biases, Market efficiency, Forecasting, Betting industry, Soccer |
| JEL: |
D40 G40 L83 |
| Date: |
2021–08 |
| URL: |
http://d.repec.org/n?u=RePEc:zrh:wpaper:390&r= |