The Role of Surprise: Understanding Over- and Underreactions Using In-Play Soccer Betting

We test the relationship between over-(under)reaction to news and the degree of surprise. Investors/bettors generally rely too heavily on prior beliefs and underreact, but sufficiently surprising information may cause overreaction due to the salience of the news. We use data from in-play soccer betting, where the arrival of information (goals) is well defined and the degree of surprise can be quantified. We find that bettors underreact to most goals, but overreact to highly surprising goals scored by “underdogs.” Our analysis suggests that overand underreactions are subsequently corrected, and a profitable betting strategy could be formed based on the biases.