Asset Pricing and Sports Betting

Tobias J. Moskowitz

AQR Capital; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

July 1, 2015

Chicago Booth Research Paper No. 15-26

I use sports betting markets as a laboratory to test behavioral theories of cross-sectional asset pricing anomalies. Two unique features of these markets provide a distinguishing test of behavioral theories: 1) the bets are completely idiosyncratic and therefore not confounded by rational theories; 2) the contracts have a known and short termination date where uncertainty is resolved that allows any mispricing to be detected. Analyzing more than a hundred thousand contracts spanning two decades across four major professional sports (NBA, NFL, MLB, and NHL), I find momentum and value effects that move betting prices from the open to the close of betting, that are then completely reversed by the game outcome. These findings are consistent with delayed overreaction theories of asset pricing. In addition, a novel implication of overreaction uncovered in sports betting markets is shown to also predict momentum and value returns in financial markets. Finally, momentum and value effects in betting markets appear smaller than in financial markets and are not large enough to overcome trading costs, limiting the ability to arbitrage them away.

Number of Pages in PDF File: 77

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Date posted: July 25, 2015  

Suggested Citation

Moskowitz, Tobias J., Asset Pricing and Sports Betting (July 1, 2015). Chicago Booth Research Paper No. 15-26. Available at SSRN: https://ssrn.com/abstract=2635517 or http://dx.doi.org/10.2139/ssrn.2635517

Contact Information

Tobias J. Moskowitz (Contact Author)
AQR Capital ( email )
Greenwich, CT
United States

University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)

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National Bureau of Economic Research (NBER)
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Cambridge, MA 02138
United States
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