Overreaction in the NFL point spread market

Abstract

A tendency for individuals to overweigh recent information and underweigh prior data has been discovered by researchers in financial markets, economic forecasting, security analysis and other areas. A study of point spread patterns in the 2264 regular season National Football League (NFL) games over the 1981–;1995 seasons was conducted to investigate the overreaction bias of bettors. Results indicated that bettors tend to overweigh outstanding positive performance when measured over the previous game, over the previous two to five games or over the previous season. In general, the more outstanding the performance, the greater the overreaction. However, bettors did not overreact to unusual negative performance over the same periods. This result is congruent with the tendency for heavy favourites to cover the point spread less than half the time over the 1969–;1995 seasons. The overreaction bias in the NFL betting market provides another example of a violation of the weak form of the Efficient Markets Hypothesis.