Momentum in Repeated Competition: Exploiting the Fine Line between Winning and Losing

Abstract

Serial correlation in performance has been analyzed extensively in finance and competition. Momentum is an empirically established tendency for asset prices, but the existence of momentum in athletics remains an open question. We find evidence of momentum in the National Basketball Association. A regression discontinuity design enables us to identify the causal effect of recent victories. We find a small positive momentum effect overall, but a large negative momentum effect for the playoffs, during which the influence of confounding factors is arguably more attenuated. We discuss potential strategic mechanisms behind this finding, and conclude that even within a sports league, the influence of momentum depends on context and incentives.

Keywords: Regression discontinuity design, Momentum, Winner effect, Sports, Natural experiment, Dynamic contests

JEL Classification: C72, C73, Z2