FIFA World Cup: A Case of (In)efficiency of the Betting Market

Ricardo Manuel Santos

Using data from all FIFA World Cup competitions that took place between 1994 and 2014, a step logit model is estimated to forecast the likelihood of success of each team in each tournament. The model correctly identifies the winner in five out of the six tournaments, and among many variables considered, key contributors to the model’s forecasting performance are identified. Using only the information available by the date preceding each of the last two in-sample World Cups, we can perform a more ambitious test of the model’s ability to forecast the winner at future tournaments. Our results indicated that Spain would win in 2010 and Germany in 2014, as they did. Our results have strong implications about which information a sophisticated bettor should process when participating in the betting market. We show that, using bookmaker odds and model probabilities, a bettor could (consistently) make a profit. Therefore, our results hint at the possibility of deviations from efficiency in the large World Cup betting market.

JEL classification: L83, Z23, G14, C53