Re-examining the betting market on Major League Baseball games: is there a reverse favourite-longshot bias?

Abstract

A recent study of the fixed-odds betting market on baseball games, while finding that the betting market is generally efficient, also found evidence of an underbetting on underdog teams. This article examines the evidence for this new anomaly. It corrects Woodland and Woodland's estimates of the commission, subjective win probabilities and test statistics. The efficiency null hypothesis cannot be rejected for all of their tests when revised test statistics are calculated for their sample period (however, like them, it was found that slight underdogs are underbet). It is also shown that their bias is not simply a bias involving favourites and underdogs. Whether underdogs are playing at home or away also seems to matter in their sample period. As well a positive relationship between returns and subjective probabilities was found for underdogs and favourites, a relationship suggestive of a favourite-longshot bias rather than its reverse. It is concluded that there is insufficient evidence to claim that this bias is a ‘true market inefficiency’.

Investor–fans? An examination of the performance of publicly traded English Premier League teams

“…Several studies examine trading rules based on potential biases in the pricing of home field advantage in point spreads (Amoako-Adu et al, 1985;Gandar et al, 1988Gandar et al, , 1998Gandar et al, , 2001Lacey, 1990;Golec and Tamarkin, 1991;Vergin and Sosik, 1999). Other studies focus on the existence of a favourite-long shot bias (Woodland and Woodlandu, 1994;Gandar et al, 2000). Sauer (1998) provides an extensive review of this literature and concludes that prices set in these markets are efficient predictors of game outcomes.…”

Testing for Home Team and Favorite Biases in the Australian Rules Football Fixed-Odds and Point Spread Betting Markets

“…4 Busche & Hall (1988) in Hong Kong racetracks; Woodland & Woodland (1994), Gandar, Zuber, Johnson & Dare (2002) (in some extent) and Woodland & Woodland (2003), in the Major League Baseball (MLB); Swindler & Shaw (1995), in a second tier Texas racetrack; and , in the National Hockey League (NHL). Woodland & Woodland (2003), based on the fact that the proportion of underdog wins (beating the spread) in Gray & Gray (1997) and in Iskoe (1998) was 0.526 and 0.531, respectively, which is over half of their games, note that the reverse bias exists also in the National Football League (NFL) point spread market, yet there has been no empirical testing to support this finding.…”

The National Football League Season Wins Total Betting Market: The Impact of Heuristics on Behavior

“…For the (−145,+125) line, Woodland and Woodland (), hereafter referred to as WW, define a unit bet as $1.45 to win $1 for the over bettor and $1 to win $1.25 for the under bettor. Gandar et al (), hereafter referred to as GZJD, define a unit bet as $1 to win $.69 (1/1.45) for the over bettor and $1 to win $1.25 for the under bettor. This results in slight differences in the subjective probabilities and the corresponding mean returns.…”