Munich Personal RePEc Archive

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

Igan, Deniz and Pinheiro, Marcelo and Smith, John (2014): Racial biases and market outcomes: "White men can't jump," but would you bet on it?

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Abstract

We identify a largely efficient market in which racial biases affect market outcomes. Examining data on NBA games, we show that teams with more black players tend to face larger point spreads 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. We examine several alternate explanations, and the racial bias remains significant in each of these specifications. This suggests that racial biases can persist even though they are financially disadvantageous, recognizable and correctable.

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