Technical Analysis: NFL Point Spreads

The third and final part of our analysis is the technical side. Fist was Schedule Analysis, followed by Fundamental Analysis. This includes facets of behavioral economics in regards to public perception and biases. Line movement and percentages play a significant role in this type of analysis as well.

"Investors and researchers have disputed the efficient-market hypothesis both empirically and theoretically. Behavioral economists attribute the imperfections in financial markets to a combination of cognitive biases such as overconfidence, overreaction, representative bias, information bias, and various other predictable human errors in reasoning and information processing. These errors in reasoning lead most investors to avoid value stocks and buy growth stocks at expensive prices, which allow those who reason correctly to profit from bargains in neglected value stocks and the overreacted selling of growth stocks."

Does this have an application to NFL football? Absolutely.

The spreads of an NFL game are similar to the price of the stock. Many variables are considered by the lines-makers when setting a line, and public perception is a very big factor. People have favorite teams they like to bet on. A team coming off a great performance on Monday Night Football the previous week, for instance, will likely be a fashionable bet the next week. However, this is a flawed and potentially dangerous line of thinking.

"Speculative economic bubbles are an obvious anomaly, in that the market often appears to be driven by buyers operating on irrational exuberance, who take little notice of underlying value. These bubbles are typically followed by an overreaction of frantic selling, allowing shrewd investors to buy stocks at bargain prices. Rational investors have difficulty profiting by shorting irrational bubbles because, as John Maynard Keynes commented, "Markets can remain irrational far longer than you or I can remain solvent” Sudden market crashes as happened on Black Monday in 1987 are mysterious from the perspective of efficient markets, but allowed as a rare statistical event under the Weak-form of EMH."

The lines makers know who the favorite pubic teams are. Therefore, there will always be a “premium” charged to those teams. The value lies in the teams that the majority of people are overreacting from a bad performance.

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