Abstract

http://ssrn.com/abstract=1540313
 
 

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Efficiency and the Disposition Effect in NFL Prediction Markets


Samuel M. Hartzmark


University of Southern California - Marshall School of Business - Finance and Business Economics Department

David H. Solomon


University of Southern California - Marshall School of Business

January 21, 2010


Abstract:     
Examining NFL betting contracts at Tradesports.com, we find mispricing consistent with the disposition effect, where investors are more likely to close out profitable positions than losing positions. Prices are too low when teams are ahead and too high when teams are behind. Returns following news events exhibit short-term reversals and longer-term momentum. These results do not appear driven by liquidity or non-financial reasons for trade. Finding the disposition effect in a negative expected return gambling market questions standard explanations for the effect (belief in mean reversion, prospect theory). It is consistent with cognitive dissonance, and models with time-inconsistent behaviour.

Number of Pages in PDF File: 51

Keywords: Disposition Effect, Prediction Markets, Behavioral Finance, Behavioral Decision Theory

JEL Classification: G12, G14

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Date posted: January 24, 2010 ; Last revised: June 26, 2012

Suggested Citation

Hartzmark, Samuel M. and Solomon, David H., Efficiency and the Disposition Effect in NFL Prediction Markets (January 21, 2010). Available at SSRN: http://ssrn.com/abstract=1540313 or http://dx.doi.org/10.2139/ssrn.1540313

Contact Information

Samuel M. Hartzmark
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
David H. Solomon (Contact Author)
University of Southern California - Marshall School of Business ( email )
Los Angeles, CA 90089
United States
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