against All Odds? A Review

Transcription

1 SFB 649 Discussion Paper Against All Odds? National Sentiment and Wagering on European Football Sebastian Braun* Michael Kvasnicka** * Humboldt-Universität zu Berlin, Germany ** RWI Essen, Germany SFB E C O N O M I C R I S K B E R L I N This research was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 "Economic Risk". ISSN SFB 649, Humboldt-Universität zu Berlin Spandauer Straße 1, D Berlin

2 Against All Odds? National Sentiment and Wagering on European Football Sebastian Braun Humboldt University Berlin Michael Kvasnicka RWI Essen April 8, 2008 Abstract This paper studies how national sentiment in the form of either a perception or a loyalty bias of bettors may affect pricing patterns on national wagering markets for international sport events. We show theoretically that both biases can be profitably exploited by bookmakers by way of price adjustment (odds shading). The former bias induces bookmakers to shade odds against the domestic team, the latter to adjust them in a way that depends on the demand elasticity of bettors for their national favorite. Analyzing empirically a unique data set of betting quotas from online bookmakers in twelve European countries for qualification games to the UEFA Euro 2008, we find evidence for systematic biases in the pricing of own national teams in the odds for win offered across countries. Variations in the sign and magnitude of these deviations can be explained by differences across countries in the respective strengths of the perception and loyalty biases among domestic bettors. Keywords: Football, Home Bias, Investment, Patriotism. JEL Classification: L20, L83. This paper has benefited from comments by Ronald Bachmann, Thomas Siedler, Martin Spieß, Thorsten Vogel, and participants of a research seminar at RWI Essen. The project was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 Economic Risk. All remaining errors are our own. Contact author: Michael Kvasnicka, Rheinisch-Westfälisches Institut für Wirtschaftsforschung e.v. (RWI Essen), Berlin Office, Hessische Straße 10, Berlin, Germany. [email protected].

3 1 Introduction Consumer preferences for home country products, buy domestic campaigns, the issuing and success of war bonds, or the home equity puzzle in international financial markets suggest that national sentiment may be of importance for individual consumption and investment choices. Little empirical research, however, has been done to substantiate such conjectures. 1 This paper contributes to this insufficiently researched area in economics by studying the international football betting market, a market that is likely to be strongly influenced by national sentiment. The online betting market in international football exhibits a number of features that make it particularly suited for analyzing the influence of national sentiment on economic behavior. First, there appears to be a strong bonding of patriotism and sports, especially in football, the most popular sport in Europe. Second, information on the quality of national teams and odds marketed (prices offered by bookmakers) should be largely symmetric across countries, as detailed information, including statistics on past performance of teams and expert analyses, can be obtained online easily, quickly, and at negligible if not zero cost. Given our focus on online wagering, access of bettors to this source of information is furthermore warranted. Third, there is a single homogeneous good traded on this market ( outcome of a game ). Variations in prices across countries therefore cannot be caused by (potentially unobservable) differences in the respective products traded. Finally, online betting markets in Europe still appear segmented between countries, as legal constraints, language barriers, and transactions costs impede wagering abroad. 2 Segmentation of national betting markets (pools of bettors) is important for our analysis. With a homogeneous product and symmetric information, prices (quotas) should be identical across countries if markets are unified. With segmented markets, however, prices may differ. They will differ in terms of the average payout per monetary unit waged, if different industry structures across countries support different markups charged by bookmakers. They will also differ in terms of relative quotas for particular outcomes of a game, if bookmakers can profitably exploit either a perception bias among bettors that induces them to overrate the winning chances of their national team, or a loyalty bias that keeps bettors from wagering against their own team even under favorable odds. Both type of biases reflect bettor sentiment. Empirical support for their influence on betting market outcomes has been found for club sports at national level. 3 Among the extensive 1 See, for example, Shankarmahesh (2006) for evidence on consumer ethnocentrism, or the recent work by Morse and Shive (2006) on the importance of patriotism for the portfolio choices of domestic investors. 2 For a recent survey of national regulations in European countries governing online wagering markets, see Williams and Wood (2007). In a perfectly unified market, competitive pressures should eliminate excess profits of bookmakers. For our sample of European countries, however, we show in Section 3 that the fixed markups charged by online bookmakers in different countries vary considerably. 3 On the perception bias, see for example, the study by Levitt (2004) which explores wagering behavior on NFL games in the US. Evidence for the loyalty bias is provided by Forrest and Simmons (2008) who analyze wagering on top tier Spanish and Scottish football. 2

4 [3] Kuypers, T. (2000), Information and efficiency: an empirical study of a fixed odds betting market, Applied Economics, 32, [4] Levitt, S.D. (2004), Why are gambling markets organised so differently from financial markets?, The Economic Journal, 114, [5] Morse, A. and S. Shive (2006), Patriotism in your portfolio, Mimeo, University of Notre Dame. [6] Sauer, R. (1998), The economics of wagering markets, Journal of Economic Literature, 36(4), [7] Shankarmahesh, M. (2006), Consumer ethnocentrism: an integrative review of its antecedents and consequences, International Marketing Review, 23, [8] Strumpf, K. (2002), Illegal sports bookmakers, Mimeo, Department of Economics, University of North Carolina. [9] William, R.J. and R.T. Wood (2007), Internet Gambling: A Comprehensive Review and Synthesis of the Literature. Report prepared for the Ontario Problem Gambling Research Centre, Guelph, Ontario, Canada. 15

5 SFB 649 Discussion Paper Series 2008 For a complete list of Discussion Papers published by the SFB 649, please visit "Testing Monotonicity of Pricing Kernels" by Yuri Golubev, Wolfgang Härdle and Roman Timonfeev, January 002 "Adaptive pointwise estimation in time-inhomogeneous time-series models" by Pavel Cizek, Wolfgang Härdle and Vladimir Spokoiny, January 003 "The Bayesian Additive Classification Tree Applied to Credit Risk Modelling" by Junni L. Zhang and Wolfgang Härdle, January 004 "Independent Component Analysis Via Copula Techniques" by Ray-Bing Chen, Meihui Guo, Wolfgang Härdle and Shih-Feng Huang, January 005 "The Default Risk of Firms Examined with Smooth Support Vector Machines" by Wolfgang Härdle, Yuh-Jye Lee, Dorothea Schäfer and Yi-Ren Yeh, January 006 "Value-at-Risk and Expected Shortfall when there is long range dependence" by Wolfgang Härdle and Julius Mungo, Januray 007 "A Consistent Nonparametric Test for Causality in Quantile" by Kiho Jeong and Wolfgang Härdle, January 008 "Do Legal Standards Affect Ethical Concerns of Consumers?" by Dirk Engelmann and Dorothea Kübler, January 009 "Recursive Portfolio Selection with Decision Trees" by Anton Andriyashin, Wolfgang Härdle and Roman Timofeev, January 010 "Do Public Banks have a Competitive Advantage?" by Astrid Matthey, January 011 "Don t aim too high: the potential costs of high aspirations" by Astrid Matthey and Nadja Dwenger, January 012 "Visualizing exploratory factor analysis models" by Sigbert Klinke and Cornelia Wagner, January 013 "House Prices and Replacement Cost: A Micro-Level Analysis" by Rainer Schulz and Axel Werwatz, January 014 "Support Vector Regression Based GARCH Model with Application to Forecasting Volatility of Financial Returns" by Shiyi Chen, Kiho Jeong and Wolfgang Härdle, January 015 "Structural Constant Conditional Correlation" by Enzo Weber, January 016 "Estimating Investment Equations in Imperfect Capital Markets" by Silke Hüttel, Oliver Mußhoff, Martin Odening and Nataliya Zinych, January 017 "Adaptive Forecasting of the EURIBOR Swap Term Structure" by Oliver Blaskowitz and Helmut Herwatz, January 018 "Solving, Estimating and Selecting Nonlinear Dynamic Models without the Curse of Dimensionality" by Viktor Winschel and Markus Krätzig, February 019 "The Accuracy of Long-term Real Estate Valuations" by Rainer Schulz, Markus Staiber, Martin Wersing and Axel Werwatz, February 020 "The Impact of International Outsourcing on Labour Market Dynamics in Germany" by Ronald Bachmann and Sebastian Braun, February 021 "Preferences for Collective versus Individualised Wage Setting" by Tito Boeri and Michael C. Burda, February SFB 649, Spandauer Straße 1, D Berlin This research was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 "Economic Risk".

6 022 "Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles" by Fang Yao, February 023 "Family Management, Family Ownership and Downsizing: Evidence from S&P 500 Firms" by Jörn Hendrich Block, February 024 "Skill Specific Unemployment with Imperfect Substitution of Skills" by Runli Xie, March 025 "Price Adjustment to News with Uncertain Precision" by Nikolaus Hautsch, Dieter Hess and Christoph Müller, March 026 "Information and Beliefs in a Repeated Normal-form Game" by Dietmar Fehr, Dorothea Kübler and David Danz, March 027 "The Stochastic Fluctuation of the Quantile Regression Curve" by Wolfgang Härdle and Song Song, March 028 "Are stewardship and valuation usefulness compatible or alternative objectives of financial accounting?" by Joachim Gassen, March 029 "Genetic Codes of Mergers, Post Merger Technology Evolution and Why Mergers Fail" by Alexander Cuntz, April 030 "Using R, LaTeX and Wiki for an Arabic e-learning platform" by Taleb Ahmad, Wolfgang Härdle, Sigbert Klinke and Shafeeqah Al Awadhi, April 031 "Beyond the business cycle factors driving aggregate mortality rates" by Katja Hanewald, April 032 "Against All Odds? National Sentiment and Wagering on European Football" by Sebastian Braun and Michael Kvasnicka, April SFB 649, Spandauer Straße 1, D Berlin This research was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 "Economic Risk".