Point Spreads and Stock Prices

Point spreads of 20 or more points happen about once in every 1,000 NFL games. There are two this weekend. There’s a financial markets lesson here.

Betting markets, like financial markets, tend to be efficient, meaning it’s hard to beat them consistently. And like financial markets, they do have blind spots.

Both financial markets and betting have problems pricing extreme events. They tend to substitute conservatism for a lack of data. As a result, extreme favorites have, in aggregate, a hard time covering the spread.

For games with spreads of 19 or more points, favorites have failed to cover in 12 of those 14 games. What appears to be a safe bet probably isn’t. This is somewhat like ditching your stocks at the low.

Just a good time to remember that point spreads and stock prices aren’t set by equations but by the madness of crowds.

Posted by on September 20th, 2019 at 1:23 pm


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