An Evaluation of the Debate Over “Testing Market Efficiency in the Major League Baseball Over-Under Betting Market”

Abstract

InarecentarticlepublishedintheJournalofSportsEconomics, BrownandAbraham (2002) present the first examination of the efficiency of the totals betting market on Major League Baseball (MLB) games. The article finds that a profitable betting strategy-betting that a team's winning streak against the posted totals line will continue-existed in the 1997 MLB season but was not profitable in other MLB seasons studied. Brown and Abraham (2002) explain the 1997 result on the uncertainties introduced into team performance in this season by team expansion, realignment, and the introduction of interleague play. This article has elicited the comment by Paul and Weinbach (2004) and the reply by Brown and Abraham (2004).Paul and Weinbach make two major points. First, the data set used by Brown and Abraham (2002) is missing the vital ingredient of the money line (odds) that is attached to the betting proposition. Paul and Weinbach's point is that, because these odds determine payouts, they are pivotal to any study of efficiency in this market. Second, in addition to assuming that all bets are no odds (or so-called flat odds) bets, Brown and Abraham (2002) assume a 40-cent instead of a 20-cent line. As a result, their study uses a constant break-even proportion of 0.545 to test for profitability. Paul and Weinbach's point is that such a test must take into account the variations in commissions and in break-even proportions stemming from the variations in odds.Brown and Abraham's (2004) reply addresses these criticisms. These authors first argue that using a 20-cent money line instead of a 40-cent money line strengthens, rather than weakens, their finding of inefficiency in this market. Their argu-