Fundamentals or Noise? Evidence from the Professional Basketball Betting Market

by: William O Brown, Raymond D Sauer

The Journal of Finance, Vol. 48, No. 4. (1993), pp. 1193-1209.

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http://www.jstor.org/stable/2329035

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Abstract

This paper uses the betting market for professional basketball games to address the issue of unexplained asset price volatility. A pricing model is presented which identifies two components in point spreads for professional basketball games. Both components--the market's estimate of relative team abilities and an idiosyncratic factor--are essentially unobserved, but can be identified ex post. The structure of this market enables tests of competing hypotheses about point spread variation. The tests reject the hypothesis that variation in the two components represents irrelevant noise. The hypothesis that unobserved fundamentals account for this variation is consistent with the data.

@article{brown-sauer-93-jof, abstract = {This paper uses the betting market for professional basketball games to address the issue of unexplained asset price volatility. A pricing model is presented which identifies two components in point spreads for professional basketball games. Both components--the market's estimate of relative team abilities and an idiosyncratic factor--are essentially unobserved, but can be identified ex post. The structure of this market enables tests of competing hypotheses about point spread variation. The tests reject the hypothesis that variation in the two components represents irrelevant noise. The hypothesis that unobserved fundamentals account for this variation is consistent with the data.}, author = {Brown, William O. and Sauer, Raymond D. }, citeulike-article-id = {2678508}, journal = {The Journal of Finance}, keywords = {pointsh}, number = {4}, pages = {1193--1209}, posted-at = {2008-04-16 17:44:42}, priority = {2}, publisher = {Blackwell Publishing for the American Finance Association}, title = {Fundamentals or Noise? Evidence from the Professional Basketball Betting Market}, url = {http://www.jstor.org/stable/2329035}, volume = {48}, year = {1993} }

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TY - JOUR ID - brown-sauer-93-jof L3 - citeulike-article-id:2678508 TI - Fundamentals or Noise? Evidence from the Professional Basketball Betting Market JF - The Journal of Finance VL - 48 IS - 4 SP - 1193 EP - 1209 PB - Blackwell Publishing for the American Finance Association N2 - This paper uses the betting market for professional basketball games to address the issue of unexplained asset price volatility. A pricing model is presented which identifies two components in point spreads for professional basketball games. Both components--the market's estimate of relative team abilities and an idiosyncratic factor--are essentially unobserved, but can be identified ex post. The structure of this market enables tests of competing hypotheses about point spread variation. The tests reject the hypothesis that variation in the two components represents irrelevant noise. The hypothesis that unobserved fundamentals account for this variation is consistent with the data. KW - pointsh AU - Brown, William AU - Sauer, Raymond PY - 1993/// UR - http://www.jstor.org/stable/2329035 ER -

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