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The Effects of Uncertainty on Market Prices: Evidence from Coaching Changes in the NBA

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  • L. Lee Colquitt
  • Norman H. Godwin
  • Rebecca T. Shortridge

Abstract

This study examines the effects of uncertainty on market prices. Specifically, we use the National Basketball Association betting market to examine whether uncertainty resulting from midseason coaching changes affects the ability of bettors to accurately set betting lines. We find that uncertainty amid midseason coaching changes results in less accurate pricing, as evidenced by higher volatility and greater overall inaccuracy in betting lines. We also find that uncertainty regarding the ability of the replacement coach and/or his strategies results in less accurate pricing, again evidenced by higher volatility and greater overall inaccuracy in betting lines.

Suggested Citation

  • L. Lee Colquitt & Norman H. Godwin & Rebecca T. Shortridge, 2007. "The Effects of Uncertainty on Market Prices: Evidence from Coaching Changes in the NBA," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5‐6), pages 861-871, June.
    • Handle: RePEc:bla:jbfnac:v:34:y:2007:i:5-6:p:861-871
    DOI: 10.1111/j.1468-5957.2006.02000.x
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    File URL: https://doi.org/10.1111/j.1468-5957.2006.02000.x
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    References listed on IDEAS

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    1. L. Lee Colquitt & Norman H. Godwin & Steven B. Caudill, 2001. "Testing Efficiency Across Markets: Evidence from the NCAA Basketball Betting Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(1‐2), pages 231-248, January.
    2. John M. Gandar & William H. Dare & Craig R. Brown & Richard A. Zuber, 1998. "Informed Traders and Price Variations in the Betting Market for Professional Basketball Games," Journal of Finance, American Finance Association, vol. 53(1), pages 385-401, February.
    3. Borokhovich, Kenneth A. & Parrino, Robert & Trapani, Teresa, 1996. "Outside Directors and CEO Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(3), pages 337-355, September.
    4. Farrell, Kathleen A. & Whidbee, David A., 2003. "Impact of firm performance expectations on CEO turnover and replacement decisions," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 165-196, December.
    5. L. Lee Colquitt & Norman H. Godwin & Steven B. Caudill, 2001. "Testing Efficiency Across Markets: Evidence from the NCAA Basketball Betting Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(1-2), pages 231-248.
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    Cited by:

    1. Daniel C. Hickman, 2020. "Efficiency in the madness? examining the betting market for the ncaa men’s basketball tournament," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(3), pages 611-626, July.

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