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Racial biases and market outcomes: "White men can't jump," but would you bet on it?

Igan, Deniz and Pinheiro, Marcelo and Smith, John (2012): Racial biases and market outcomes: "White men can't jump," but would you bet on it?

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Abstract

We identify an otherwise efficient market in which racial biases affect market outcomes. In particular, we examine data on point spreads for NBA games over the 15 seasons from 1993-94 to 2007-08. We find evidence that teams with more black players tend to face a larger point spread and that these teams perform worse against the spread. These biased outcomes are significantly large and persistent so that we are able to identify profit opportunities. We also find evidence that the biased spread is set by the bookmakers rather than being moved as a result of excessive betting on the more black team. These findings are consistent with information-based discrimination where mistaken beliefs persist even though they are financially disadvantageous, and, more importantly, recognizable and correctable.

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