Market Efficiency and Information Flow

What a Price Change Can Show

Record the operator, selection, market, line, settlement rules, price, and timestamp. A before-and-after comparison establishes that a quote changed. It does not establish who caused the change, what all participants knew, or whether either price was profitable.

For example, a quarterback's confirmed absence may coincide with a spread moving from -5 to -3. News, another operator's quote, changed limits, and liability management are possible explanations. Identifying the actual cause requires evidence beyond the movement itself. A two-point spread adjustment is not a universal conversion to a particular win-probability change.

Separate the Price from the Probability Assumption

The offered price determines the payout. Its raw implied probability is a break-even threshold in a win/loss model. Normalizing all prices in a complete market produces market probability estimates, not the unknown true probabilities. An analyst's forecast is another estimate that needs validation.

The conversion guide shows those distinctions. Merely exceeding a normalized market estimate does not imply positive expected value at the offered price; the price's break-even threshold still matters.

Measuring a Price Change

Assume a $100 stake, an illustrative 60% win probability, win/loss outcomes only, and no fees, taxes, pushes, or voids. Use full precision before rounding displayed amounts.

Expected net profit weights each possible net outcome by its probability:

EV = p × net winnings if successful - (1 - p) × stake

Equivalently, EV = p × total return if successful - stake.

Total return includes the original stake; net winnings do not.

At +100, a win produces $100 net winnings and $200 total return:

EV = 0.60 × $100 - 0.40 × $100 = +$20.

Implied break-even probability = 100 / (100 + 100) = 50%.

At +120, a win produces $120 net winnings and $220 total return:

EV = 0.60 × $120 - 0.40 × $100 = +$32.

Implied break-even probability = 100 / (120 + 100) ≈ 45.45%.

At the same assumed probability, +120 offers more expected net profit than +100. The 60% input is illustrative: neither calculation establishes that the true probability is 60% or that a real edge exists. Expected profit is not the outcome of every selection; the +120 ticket realizes either +$120 or -$100.

The definition follows OpenStax's expected-value rule. These calculations are derived examples, not observed market results.

Review an Information Timeline

1. Record the original quote and your probability assumption before learning the result.
2. Record confirmed news with its source and publication time. Separate confirmed information from rumors.
3. Record the later quote for the same market and rules. Note if the handicap itself changed.
4. Explain which model input changed and why. Do not select an adjustment because it matches the eventual result.
5. Recalculate expected net profit from the newly offered payout and revised assumption.
6. Afterward, review forecast calibration, missing observations, and alternative explanations across a documented sample.

A favorable result does not prove the method was sound; an unfavorable result does not by itself refute it. Changes in probabilities, prices, and dependence between selections limit what a short sample can establish.

Continue the Investigation

Use The Logic of Line Movement to distinguish changes in price from changes in the selection's handicap. Use Closing Line Value to compare an entry with a consistently defined close without treating that benchmark as proof of profitability.

Questions About Market Efficiency

Q: Does a market price reveal the true probability?

A: No. Its raw implied probability is a break-even threshold under the settlement assumptions. A normalized market estimate and an analyst's forecast are estimates; neither establishes the unknown true probability.

Q: What is the expected net profit on $100 at +120 if the assumed win probability is 60%?

A: With win/loss outcomes only and no fees or taxes, EV = 0.60 × $120 - 0.40 × $100 = +$32. The break-even probability is approximately 45.45%. The 60% assumption is illustrative and does not establish a real edge.

Q: Does movement after news prove what caused the change?

A: No. A timestamped comparison documents the quote change, but causation requires separate evidence. Record the news source, market conditions, and alternative explanations.

Q: Does positive modeled EV guarantee profit?

A: No. The probability assumption may be wrong, and realized outcomes vary even under a correct model. Long-run conclusions require appropriate data and assumptions, not a single favorable quote or result.