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Exploiting the “Win But Does Not Cover” Phenomenon in College Basketball
Author(s) -
Berkowitz Jason P.,
Depken II Craig A.,
Gandar John M.
Publication year - 2018
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12155
Subject(s) - basketball , portfolio , cover (algebra) , exploit , phenomenon , economics , computer science , history , financial economics , engineering , computer security , mechanical engineering , physics , archaeology , quantum mechanics
Wolfers (2006) was the first to document that heavy favorites in college basketball win but fail to cover the pre‐game point spread at a statistically higher rate than expected. We generate a hedged strategy to exploit the “win but does not cover” phenomenon using two wagers: a bet on the underdog sides line and a bet on the favorite money line. While one bet is guaranteed to win regardless of the outcome, both bets win if the favorite wins but does not cover. We show that the minimum‐variance portfolio best exploits this anomaly, yielding an average return of 0.34% per game and a positive return in five of the seven seasons of college basketball analyzed.