There is evidence that stock market investors overreact to stocks that have been identified as winners and losers. This article examines whether contrarian strategies of selling (betting against) winners and buying (betting on) losers are successful in the gambling market for professional football. Contrary to the stock market, National Football League betting is found to be highly efficient. Because risk is constant for all football wagers, results support the argument that abnormal returns paid to contrarian stock market investors may be attributed to the higher risk incurred.
Get full access to this article
View all access options for this article.
References
1.
Brown, W., & Sauer, R. (1993). Does basketball believe in the “hot hand”? Comment. American Economic Review, 83, 1377-1386.
2.
Camerer, C. F. (1989). Does the basketball market believe in the “hot hand.”American Economic Review, 79, 1257-1261.
3.
Chan, K. (1988). On the contrarian investment strategy. Journal of Business, 61, 147-165.
4.
DeBondt, W.F.M., & Thaler, R. H. (1985). Does the stock market overreact?Journal of Finance, 40, 793-805.
5.
Fama, E. F., & French, K. (1992). The cross-section of expected stock returns. Journal of Finance, 46, 427-466.
6.
Gandar, J., Zuber, R., O’Brien, T., & Russo, B. (1988). Testing rationality in the point spread betting market. Journal of Finance, 42, 995-1007.
7.
Gray, P. K., & Gray, S. F. (1997). Testing market efficiency: Evidence from the NFL sports betting market. Journal of Finance, 52, 1725-1737.
8.
Iskoe, A. (1998). Logical Approach’s pointspread encyclopedia: Vol. 1. NFL teams and situations. Las Vegas, NV: Logical Approach.
9.
La Porta, R., Lakonishok, J., Shleifer, A., & Vishny, R. (1997). Good news for value stocks: Further evidence on market efficiency. Journal of Finance, 52, 859-874.
10.
Tryfos, P., Casey, S., Cook, S., Leger, G., & Pylypiak, B. (1984). The profitability of wagering on NFL games. Management Science, 30, 123-132.
11.
Woodland, B., & Woodland, L. (1997). Efficiency in gambling markets involving spread: A corrected and simplified test. Applied Economic Letters, 4, 93-95.
