Weather Biases in the NFL Betting Market: Explaining the Home Underdog Effect

This paper tests price efficiency and outcome predictability in the NFL point spread betting market by examining game forecast errors. Our main contribution to the existing literature is the identification of a highly significant increase in the magnitude of the market forecast error during the final few weeks of each season. We demonstrate that this anomaly arises because the impact of game day temperature on team performance is underestimated, and largely explains the home underdog effect. Our results show that warm-weather teams are significantly less likely to cover spreads when playing in cold temperatures. We also offer evidence that the limits of arbitrage have enabled this phenomenon to persist for decades.