Authors: Thomas T. Byrnes (1) and Joseph Anthony Farinella, Ph.D.*(2)
(1) Thomas Byrnes is a graduate from the Honors College at the University of North Carolina Wilmington. Mr. Byrnes is currently working as a financial advisor.
(2) Joseph Farinella is an Associate Professor of Finance at the University of North Carolina Wilmington. Dr. Farinella is also a Chartered Financial Analyst and consultant.
Joseph Anthony Farinella, Ph.D.
University of North Carolina Wilmington
Department of Economics and Finance
601 South College Road
Wilmington, NC 28409
The notion of “momentum” and its effect on the outcome of sports games has been a point of contention for decades. This paper tests if a simple betting strategy based on momentum can be used to generate a consistent profit. The momentum strategy is applied to the National Basketball Association; we examine 30 teams spanning the 2001-2013 seasons. The results show that the momentum strategy generates a significant profit over this period. The momentum strategy is often referred to as the hot hand strategy. The strategy requires betting on teams to win that are already on a hot streak of at least four games, while betting on teams to lose that are already on a cold streak of at least four games. The results show that the momentum betting strategy yields an average overall winning percentage of 56.5%, which is significantly above the 52.4% required to break-even.
KEYWORDS: Sports wagering, Market efficiency, Momentum