Racial Biases and Market Outcomes: 'White Men Can't Jump,' But Would You Bet on It?
International Monetary Fund (IMF) - Financial Studies Division
Economic Consulting Services LLC
July 24, 2012
We identify an otherwise efficient market in which racial biases affect market outcomes. In particular, we examine data on point spreads for NBA games over the 15 seasons from 1993-94 to 2007-08. We find evidence that teams with more black players tend to face a larger point spread and that these teams perform worse against the spread. These biased outcomes are significantly large and persistent so that we are able to identify profit opportunities. We also find evidence that the biased spread is set by the bookmakers rather than being moved as a result of excessive betting on the more black team. These findings are consistent with information-based discrimination where mistaken beliefs persist even though they are financially disadvantageous, and, more importantly, recognizable and correctable.
Number of Pages in PDF File: 45
Keywords: Market efficiency, Racial biases, Belief-based discrimination
JEL Classification: D03, G00, J15working papers series
Date posted: January 20, 2012 ; Last revised: July 25, 2012
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