Testing Market Efficiency: Evidence from the NFL Sports Betting Market
Gray & Gray, April 1996

"The growing literature on momentum/contrarian investing is concerned with whether it is possible to earn abrnormal returns by looking at recent performance of a stock... the analogy to sports betting is quite strong..."

Abstract
This paper examines the efficiency of the National Football League betting market. The standard OLS regression methodology is replaced by a probit model. This circumvents potential econometric problems, and allows us to implement more sophisticated betting strategies where bets are placed only when there is a relatively high probability of success. In-sample tests indicate that probit-based betting strategies generate statistically significant profits. Whereas the profitability of a number of these betting strategies is confirmed by out-of-sample testing, there is some inconsistency among the remaining out-of-sample predictions. Our results also suggest that widely documented inefficiencies in this market tend to dissipate over time.

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