Evidence of Betting Market Intraseason Efficiency and Interseason Overreaction to Unexpected NFL Team Performance 1988-2006

A structural model is derived describing the relationship between the probability that the favored team is victorious and the point spread through the use of a "no-arbitrage'' condition. A series of probit models are developed that show that NFL wagering markets were efficient within season during the period 1988-2006 and that the point spread is a statistically significant indicator of probability of victory. A team-level excess performance metric is estimated, termed an NFL Alpha, that indicates the extent to which a team's on-the-field performance exceeded betting market expectations. Finally, it is shown that there exists a market overreaction effect for NFL Alphas across seasons.