Big Underdogs and Heavy Favorites: Overreaction in College Football Gambling Markets

For years "bounce back" and "let down" have been a staple of college football handicapping. The late Jack Painter, the Gold Sheet and Jim Barnes had for years projected outcomes of games based on the emotional make-up of college football. In this study, published in January 2000, Clifford P. Stephens and H. Douglas Witte at the University of Missouri's Department of Finance - College of Business and Public Administration, the public's perception of the team's performance is analyzed.

In coming weeks we will be reviewing methods that you can employ to pre-screen games for "bounce back" and "let down' opportunities.

Abstract
Casual observation suggests that point spreads in college football gambling markets are heavily influenced by the results of the respective teams' previous weeks' games. In fact, too much weight is placed on the previous weeks' results; gamblers overreact to surprise outcomes, in this case big upsets. We document a statistically and economically significant betting strategy following these big upsets. If a team was a heavy favorite in their last game and got upset, they are likely to cover the spread in their following game. Their opponent that was a big underdog and pulled off the upset is not likely to cover the spread in their next game. We attribute this finding to bettors overreacting to the surprise outcome and biasing the subsequent point spreads. A betting strategy utilizing this information is successful 56.6 percent of the time, significantly more than enough to cover the vigorish. Further, the bigger the surprise or upset, the more successful the strategy becomes. Additionally, the later in the season this surprise or upset occurs the more successful the strategy.

The full article can be found here.