Price movements and the prevalence of informed traders: The case of line movement in college basketball

• In the wagering of college basketball games, closing lines are more accurate than opening lines.
• This observation is driven by games between “low profile” teams. These games disproportionately attract expert gamblers.
• This is evidence that price movements in markets concentrated with informed traders indicate information realization.
• Price movements in markets with more regular traders are more likely indicative of noise.
• We draw analogies to the more commonly referenced financial markets.

Recent research has hypothesized that a higher concentration of informed traders in a market implies that prices are more efficient. A reasonable next question is whether large price movements in markets with a relatively more informed clientele are more indicative of information realization. We find line movements in college basketball games of relatively low profile, denoted by the lack of a “power conference” team in the contest, are significantly more likely to be the result of information realization. This confirms that substantial price changes in markets with fewer ordinary traders are more (less) likely indicative of information flow (noise).