Modeling and forecasting the outcomes of NBA

basketball games
Hans Manner∗1

1
Institute of Econometrics and Statistics, University of Cologne

November 26, 2015

Abstract

This paper treats the problem of modeling and forecasting the outcomes of NBA
basketball games. First, it is shown how the benchmark model in the literature can
be extended to allow for heteroscedasticity and estimation and testing in this frame-
work is treated. Second, time-variation is introduced into the model by introducing
a dynamic state space model for team strengths. The in-sample results based on
eight seasons of NBA data provide weak evidence for heteroscedasticity, which can
lead to notable differences in estimated win probabilities. However, persistent time
variation is only found when combining the data of several seasons, but not when
looking at individual seasons. The models are used for forecasting a large number
of regular season and playoff games and the common finding in the literature that it
is difficult to outperform the betting market is confirmed. Nevertheless, a forecast
combination of model based forecasts with betting odds can lead to some slight
improvements.

Keywords: Sports forecasting, paired comparisons, NBA basketball data, heteroscedas-

ticity, time-variation

∗
[email protected]

1
1 Introduction
The statistical modeling of sports data has become a large topic of research over the past
decades. Detailed data of high quality have become easily available due to their publi-
cation and distribution via the internet, which allows researchers to address a variety of
questions. One problem of particular interest is the prediction of the outcomes, both in
terms of the final score and the winning team; see Steckler et al. (2010) for an overview.
This is closely related to the issue of modeling the strength of each player or team in-
volved in the competition of interest. The best known example of such an approach is
the Elo rating in chess (Elo 1978), but similar statistical methods have been applied in
many different sports. Such a strength, or rating, can be obtained by variations on the
statistical method of paired comparison models by Bradley and Terry (1952) and David
(1959). A notable methodological innovation was the introduction of dynamic models of
paired comparison in Glickman (1993) and Fahrmeir and Tutz (1994). This approach has
been applied to soccer (Fahrmeir and Tutz 1994 or Koopman and Lit 2015), chess and
tennis (Glickman 1999), football (Glickman 2001, Glickman and Stern 1998), and bas-
ketball (Knorr-Held 2000), finding evidence of time-varying team/player ratings. More
recently, Cattelan et al. (2013) proposed a dynamic paired comparison model based on
the exponentially weighted moving average to model time-varying basketball and soccer
results, whereas Baker and McHale (2015) propose a deterministic time-varying strength
model to determine which English football team has been the strongest in a historical con-
text. Percy (2015) gives an overview of stochastic processes that can be used for modeling
sports data and suggests a method for dynamic updating of the model parameters.
The present paper treats the modeling and prediction of national basketball association
(NBA) basketball games. The NBA is the most important and strongest professional
basketball league in the world, consisting of 30 teams/franchises. With revenues of 4.6
billion US$ and an average team worth of 634 million US$ the league has a high economic
relevance.
Statistical models for various aspect of basketball have been suggested in the literature.
Early contributions introducing the regression based approach to basketball modeling
are Stefani (1977a) and Stefani (1977b). The National Collegiate Athletic Association
(NCAA) basketball tournament has been analyzed and modeled in several studies, e.g.,
Schwertman et al. (1991), Carlin (1996) or Harville (2003), with a focus on computing
win probabilities and accurate team rankings. Stern (1994) proposes a model relying
on Brownian motion that can be used to predict the outcome of a game conditional

2
on a given score and remaining game time. A further topic that is often addressed in
the literature is the home court advantage, studied in Harville and Smith (1994), Jones
(2007, 2008), or Entine and Small (2008). Other studies focus more on the relevance of
game statistics, such as Kubatko et al. (2007) who introduce various advanced statistics
computed from box score data. Several studies, e.g., Teramoto and Cross (2010), Baghal
(2012) or Page et al. (2007), explain the game outcomes using box scores and advanced
statistics, in particular the four factors 1 . However, as this information in only known
ex post, it is unclear whether these results can be exploited for forecasting purposes. A
notable exception is the Markov model in Štrumbelj and Vračar (2012), in which the
transition probabilities in a Markov chain model for basketball games are explained by
the four factors. An interesting approach using detailed in-game data is the graphical
model for match simulation by Oh et al. (2015).
The prediction of basketball games is the topic of Boulier and Stekler (1999), Caudill
(2003), Loeffelhold et al. (2009), Rosenfeld et al. (2010), Stekler and Klein (2012), Štrumbelj
and Vračar (2012), or Štrumbelj (2014). These predictions are done in very different set-
tings and with quite distinct methodologies. In particular, forecasts are often based on
team rankings, betting odds or statistical models. A common finding of many studies is
that predictions based on betting markets are difficult to beat, thus implying efficiency
of the betting markets; see also Steckler et al. (2010) and references therein on this issue.
This paper contributes to the aforementioned literature in several ways. Building on
the benchmark linear model for team strengths, including parameters for the effect of
the home court advantage and of playing back-to-back games, team specific volatility
is introduced into the framework. The estimation and testing for heteroscedasticity is
discussed. A second contribution is to consider a model for time-varying team strengths,
similar to the dynamic models discussed above, in which the team strengths follow a
Gaussian autoregressive process. The empirical analysis relies on a large dataset of eight
NBA seasons. Estimates of teams strength and rankings, as well as the effect of the home
court advantage and back-to-back games are compared across different models. Tests
for heteroscedasticity are applied to the data providing some weak evidence against the
assumption of equal error variances across teams. Applying the time-varying model we
find only little evidence for persistent time-varying strength parameters within a single
season, although the strength is persistent when pooling the data of all seasons. This
1
The four factors are effective field goal percentage, turnovers per possession, offensive rebounding
percentage, and free throw rate; see Kubatko et al. (2007) for details

3
is in line with the usual believe that the “hot hand” does not exist for teams; see the
discussion in Camerer (1989) and Brown and Sauer (1993) on this issue. Finally, the
forecasting performance of the proposed models is compared for a large number of regular
season and playoff games. The model forecasts are compared to point spreads from the
betting market and it turns out that this is a benchmark that is difficult to beat. The
model based forecasts are also combined with the point spreads and the resulting forecast
combinations show some promising results.
The rest of the paper is structured as follow. In Section 2 the methodology is explained,
Section 3 presents the empirical application and some conclusions are given in Section 4.
In the appendix estimation details for the dynamic state space model and additional
estimation results are given. Additional and detailed empirical results for the individual
seasons from 2006-2014 can be found in the online appendix of the paper.

2 Methodology
Let yijk be the difference in scores of the home team i and the away team j, where
k = 1, . . . , n is the index of game k and n is the total number of games. The total number
t×K
of teams is denoted by t and each team plays a total of K games, so that n = 2
. A
simple model for the outcome of the game is

yijk = λ + α(Bi − Bj ) + βi − βj + eijk , (1)

where λ denotes the (constant) home advantage, Bi is a dummy variable indicating

whether team i plays back-to-back games, i.e., games on two consecutive days, with α the
corresponding effect, and βi and βj denote the strength of teams i and j, respectively.2
The error term eijk is assumed to be normally distributed with mean 0 and variance σ 2 .
Harville (2003) suggests accounting for the discreteness of the observed scores. However,
normality tests and the results in Stern (1994) suggest that the residuals from model (1)
and its extensions below are normally distributed. Furthermore, normality of the error
terms implies that the correction for blowout victories proposed in Harville (2003) is not
necessary and would, in fact, lead to inefficient estimates given the fact that under normal-
ity ordinary least squares (OLS) is equivalent to the (asymptotically efficient) maximum
likelihood estimator. We can state the model in matrix form letting y be the n × 1 vector
2
Here we made the assumption that the effect of playing back-to-back games is the same for the home
and away team.

4
of spreads, e the n × 1 vector of errors, β = [λ α β1 . . . βt ]′ the vector of coefficients and
X the n × (t + 1) design matrix. A typical row of this matrix has 1 as its first element
(for the home advantage), Bi − Bj in the second column, 1 in column i + 2 and −1 in
column j + 2 in the case that it corresponds to a game of team i (home) against team j
(away). The remaining elements are equal to 0. Then the model is compactly given by

y = Xβ + e. (2)

However, the matrix X is not of full rank, so for estimation one can remove the third
column. This corresponds to the normalizing restriction β1 = 0, meaning that the strength
of the first team is set equal to zero. Without this restriction the parameter vector β
cannot be identified, as adding a constant to each team strength leads to an equivalent
model. The parameters can be then estimated by OLS:

β̂OLS = (X ′ X)−1 X ′ y. (3)

2.1 Heteroscedasticity
The model above assumes constant variance of the error term, i.e., e ∼ N(0, σ 2 I), where
I is the n × n identity matrix. Here we relax this assumption. Let the strength of team
i in game k be given by
Sik = βi + eik , (4)
iid
where βi is the constant component of the team strength and eik ∼ N(0, σi2 ) the team
specific error term. Thus the strength of a team in a specific game consists of a constant
component and an error term. A larger value of the error variance σi2 implies that the
corresponding team shows a more volatile performance. Then the outcome of the game
is modeled as

yijk = λ + α(Bi − Bj ) + Sik − Sjk = λ + α(Bi − Bj ) + βi − βj + eik − ejk . (5)

| {z }
eijk

Consequently, the baseline model (1) is obtained when σi2 = σ 2 /2 for all i. In matrix
notation the model is the same as (2), but with Cov(e) = Ω 6= σ 2 I. The matrix Ω is
diagonal with typical element σi2 + σj2 , corresponding to a game between teams i and j.
The model can be estimated in two ways: Maximum likelihood estimation (MLE) or
feasible generalized least squares (FGLS); see Greene (2011) for details on GLS estimation.
MLE is straightforward since eijk ∼ N(0, σi2 + σj2 ) and the errors are independent. To

5
estimate the model by FGLS first estimate (2) by OLS to obtain the residual vector ê.
Next, run the regression
ê2 = Zγ + η, (6)

where ê2 is the vector of squared residuals and the n × t matrix Z has a typical row with
entries of 1 in columns i and j if the observation corresponds to a game between teams
i and j and zeros in the remaining columns. The estimated parameter vector γ̂ in fact
gives estimates for the team specific variances σi2 . The fitted values from (6), say σ̂ijk
2
,
make up the elements on the main diagonal of our estimate for the covariance matrix of
the error terms Ω̂. Then the FGLS estimator is given by

β̂F GLS = (X ′ Ω̂−1 X)−1 X ′ Ω̂−1 y. (7)

A natural question is whether the model should be estimated by MLE or by FGLS, which
differ in finite samples. FGLS has the advantage that it is easy to compute and does not
require numerical optimization, whereas MLE is appealing due to the asymptotic opti-
mality properties of maximum likelihood estimators when the model is correctly specified.
However, no statement can be made which estimator is preferable in finite samples.
Consider testing the null hypothesis of homoscedasticity, i.e., a constant error variance
across teams,
H0 : σi2 = σj2 for all i 6= j. (8)

There are two ways we can test this hypothesis. First, one could estimate model (5) by
MLE and additionally estimate the model under the restriction of homoscedasticity. Let
LL0 be the log-likelihood under H0 and LL1 under the alternative. Then we can test H0
using
LR = 2(LL1 − LL0 ), (9)

which follows a χ2 distribution with t−1 degrees-of-freedom under the null. Alternatively,
we can base our test on the regression (6). Let SSR1 be the sum-of-squared residuals
from this model and let SSR0 be the residuals from regressing ê2 on a constant. Then
we can test H0 with the F-statistic
(SSR0 − SSR1 )/(t − 1)
F = , (10)
SSR1 /(n − t)

which is distributed F (t − 1, n − t).

6
 In general, one may be interested in computing the probability that team i (the home
team) wins a specific game. This can be computed as

P (Team i wins) = P (yijk > 0) = P (λ + αBi + Sit > αBj + Sjk )

= P (λ + αBi + βi + eik > βj + αBj + ejk )
= P (ejk − eik < λ + α(Bi − Bj ) + βi − βj )
 
ejk − eik λ + α(Bi − Bj ) + βi − βj 
= P q < q
σi2 + σj2 σi2 + σj2
 
λ + α(Bi − Bj ) + βi − βj 
= Φ q , (11)
σi2 + σj2

where Φ denotes the CDF of the standard normal distribution.

2.2 Dynamic Modeling

In this section we consider a model in which the strength of team i is a time-varying latent
process. It is assumed to follow a Gaussian autoregressive process of order one. Let the
strength parameter be indexed by ki = 1, . . . , 823, i.e., we now have βi,ki . The outcome of
the game in this context is modeled by

yijk = λ + α(Bi − Bj ) + βi,ki − βj,kj + eijk , (12)

iid
where eijk ∼ N(0, σ 2 ). The time-varying team strength evolves as

βi,ki = µi + φi βi,ki −1 + ηki , (13)

where ηki ∼ N(0, ση2i ). Although this is a state space model and βi,ki is unobservable the
estimation is relatively straightforward due to the fact that both ek and ηki are normally
distributed. The key difference to a standard state space model in time series analysis
is the fact that the observations are not equidistant in calendar time, and therefore the
evolution of the strength is defined from game to game.4 Nevertheless, the Kalman filter
can be applied to estimate the model parameters and the strengths of the teams. The
3
Note that each team plays 82 games per season, with the exception of lockout seasons such as the
2011-2012 season. When the model is applied to multiple seasons the number of games per team changes
accordingly.
4
A model in which strength evolves in calendar time was also considered in a preliminary analysis.

7
details on how this is done for this specific model are given in the appendix. We impose
one set of restrictions to the model in order to reduce the number of free parameters,
namely we restrict φi to be the same for all teams. Furthermore, we also consider im-
posing the restriction that ση2i is the same for all teams, addressing the issue whether
heteroscedasticity is still an issue when allowing for time-varying strength parameters.
Again, a standard likelihood ratio test can be used to test this restriction.
When analyzing the data of multiple seasons we want to allow for a faster adjustment of
the team strength at the beginning of the season, due to the fact that trades, retirements
and draft picks are likely to results in significant changes in team strengths from one
season to another. Here we follow the suggestion of Koopman and Lit (2015) and replace
the distribution of ηki by
iid
ηki ∼ N(0, ση2i + σF2 G I{F Gi } ), (14)

where the indicator I{F Gi } is equal to 1 for the first game team i plays in each season. As
noted by Koopman and Lit (2015), when the team strength has high persistence this will
lead to breaks in the process.

3 Application
In this section we apply the models proposed in Section 2 to a large data set of NBA
games covering the Seasons 2006-2007 until 2013-2014, thus a total of eight NBA seasons.
The data was obtained from www.nbastuffer.com. Besides the outcomes of the games and
betting odds5 , the data set contains further information that was not used in this study
such as the box score, the starting lineups and some advanced basketball statistics.
In a typical regular season each of the 30 teams plays 82 games, resulting in a total of
1230 regular season games. An exception is the 2011-2012 lockout season in which each
team played 66 games, implying a total of 990 regular season games. Furthermore, during
the 2012-2013 season as a result of the bombing at the Boston marathon the game Boston
vs. Indiana needed to be rescheduled and was eventually not played.
The rest of this section is structured as follows. In Section 3.1 we present and discuss
the in-sample results. Section 3.2 compares the forecasting performance of the models for
both regular season and playoff games.
5
Based on www.scoresandodds.com.

8
3.1 In-sample results
Here we consider the modeling of the regular season data for all available seasons. The
results of the static models are discussed in Section 3.1.1 and the results of the dynamic
model can be found in Section 3.1.2.

3.1.1 Static models

In this section we address the questions whether the variance of the team strength dif-
fers between teams and whether the incorporation of heteroscedasticity influences the
estimation of the team strength and the ranking of the teams. Furthermore, we pro-
vide estimates of the home court advantage and the effect of playing back-to-back games.
An example illustrates how these factors affect the estimated winning probabilities The
analysis was conducted for each individual season from 2006 to 2014 and for the pooled
data including (team specific) season dummies to allow the strength of the teams to vary
between seasons. We only report the results for the 2013-2014 season and for the pooled
estimation. The complete results can be found in the online appendix of the paper.
Table 1 presents the estimates for the home advantage and the effect of back-to-
back games, as well as the p-values of the F-test and likelihood ratio test for the null
hypothesis of homoscedasticity given in equations (9) and (10). The likelihood ratio test
is additionally applied for the dynamic model characterized by equations (12) and (13).
The test results give some evidence in favor of heteroscedasticity, although for the pooled
data the homescedasticity cannot be rejected at the 1% significance level. The results for
the remaining seasons, to be found in the online appendix, are mixed. Considering the
fact that we perform the tests over eight seasons, using a simple Bonferroni adjustment
for each test individually suggests rejection when the p-value is below 0.05/8 = 0.00625
when testing at α = 0.05. This suggests rejection only in 3 out of 8 seasons. Taken jointly
these results suggest that there is only weak evidence in favor of heteroscedasticity. The
effect of the home advantage is estimated to be around 2.7 points per game, whereas
the playing back-to-back games on average results in a disadvantage of about 1.8 points.
These results are robust across the different models and seasons.
Additionally, several normality tests were applied on the estimated residuals of the
different models. For each season individually normality cannot be rejected, whereas
tests applied to the residuals of the pooled data provide some evidence against normality.
The detailed results can be found in the online appendix.
The estimated team strengths, rankings and estimated variances for the 2013-2014

9
 Table 1: Home advantage, effect of back-to-back games and heteroscedasticity tests
OLS GLS MLE Dynamic
2013-2014
Home 2.29 2.22 2.29 2.21
(0.35) (0.32) (0.33) (0.33)
B2B -1.85 -1.70 -1.69 -1.73
(0.66) (0.60) (0.61) (0.62)
Het. - 0.0004 0.0000 0.0000
2006-2014
Home 2.70 2.69 2.69 2.70
(0.12) (0.12) (0.12) (0.12)
B2B -1.87 -1.86 -1.86 -1.88
(0.23) (0.22) (0.22) (0.22)
Het. - 0.0278 0.0044 0.0275

Note: Table 1 presents the estimated homecourt avantage, the effect of playing back-to-back games (B2B)
with standard error in parentheses and the p-values of the tests for heteroscedasticity (Het.). The results
are based on the models defined in equations (1), (5) and (12), denoted by OLS, GLS/MLE and Dynamic,
respectively. GLS and MLE refer to the estimation method of the heteroscedastic model (5).

season can be found in Table 4 in Appendix B. The parameter estimates show some
differences between the different estimators and some slight differences in team rankings
emerge when allowing for heteroscedasticty. Looking at the range of estimated team
strengths it can be seen that the difference between the best (San Antonio) and the worst
(Philadelphia) team in the league implies an expected point difference of about 18 points.
Looking at the variance estimates themselves no clear pattern emerges. High variances
are possible both for successful and unsuccessful teams.
In order to get a feeling of the implications for predicting the outcomes of games
based on the different models we computed the winning probabilities for a few hypotheti-
cal games in the 2013-2014 season. The teams we consider are ones characterized by high
estimated variances, (New York, Chicago, and Philadelphia) and teams with low team es-
timated variances (Orlando, Milwaukee, Dallas). Their estimated strengths and variances
can be found in Table 4. Note that the estimated error variance for the homoscedastic
2
model is σ̂OLS = 136.6. In Table 2 we report the estimated win probabilities of Team
1 vs. Team 2 in a number of settings, computed using equation (11). In particular,

10
 Table 2: Predicted winning probabilities
Team 1 Team 2 PHom,1@2 PHet,1@2 PHom,2@1 PHet,2@1
New York Chicago 0.3473 0.3941 0.5006 0.5042
B2B 0.4079 0.4343 0.564 0.5452
B2B 0.2903 0.3551 0.4371 0.4631
Orlando Milwaukee 0.5079 0.5013 0.6606 0.7651
B2B 0.5712 0.6061 0.7169 0.8386
B2B 0.4444 0.3965 0.6004 0.6762
New York Philadelphia 0.7317 0.6766 0.8443 0.7711
B2B 0.7816 0.7134 0.8794 0.8016
B2B 0.6766 0.6381 0.803 0.7381
Dallas Milwaukee 0.7786 0.9354 0.8773 0.989
B2B 0.8231 0.9643 0.9068 0.995
B2B 0.7283 0.8909 0.8418 0.9775

Note: Table 2 presents the predicted probability that Team 1 will beat Team 2 with either team playing at
home. ’Hom’ stands for the homoscedastic model and ’Het’ for the heteroscedastic model. B2B indicates
that the respective team is assumed to play back-to-back games. The numbers are based on the estimates
for the 2013-2014 season that can be found in Table 4.

we compare the probabilities for the homoscedastic baseline models estimated by OLS
and the heteroscedastic model estimated by MLE. We consider the situation that either
team plays at home and additionally that each team plays back-to-back (B2B) games.
The probabilities based on the homescedastic and heteroscedastic models are very similar
when the win probabilities are close to 0.5, but the probabilities differ significantly, up
to 0.17, when one team is more likely to win. The home court advantage can lead to
differences in estimated win probabilities of up to 0.26, whereas the effect back-to-back
games can change the win probability up to about 0.1. While these examples consider
a rather extreme situation when both teams have either high or low variances, it shows
that heteroscedasticity can affect estimated win probabilities quite strongly. Furthermore,
these numbers give an impression of the importance of playing home/away and back-to-
back games not in terms of expected difference in the spread, but in terms of winning
probabilities.

11
3.1.2 Dynamic modeling

In order to shed some light on the question of momentum in team strength we treat the
residuals of the static model as panel data for each team over the course of the individual
seasons and perform the Lagrange-multiplier test for autocorrelation by Baltagi and Li
(1998). In all cases the null hypothesis of no-autocorrelation cannot be rejected6 . This
provides some initial evidence against persistent and predictable time-variation in team
strengths.
The next step in the analysis is the estimation of the dynamic state space model from
Section 2.2. Intuitively this model seems a reasonable approach, as one would expect the
strengths of teams to change throughout the course of a season due to injuries, trades,
changes in coaching and team chemistry, etc. Considering only the individual seasons,
however, the log-likelihood of the dynamic and static models are basically identical for
all seasons and the point estimates for the persistence parameter φ is always close to 0.
Furthermore, for individual seasons the smoothed and filtered estimates of the path of
the team strengths look rather erratic and do not suggest any persistence.
One explanation of these results may be that the persistence parameter φ may be diffi-
cult to estimate with the limited number of games in each season. Therefore, the data from
all seasons was pooled and the extended model allowing for an increased error variance
at the beginning of each season as described in equation (14) was used. For this model
(assuming homescedasticity across teams) the parameter estimates were (φ̂, σ̂ 2 , σ̂η2 , σ̂F2 G ) =
(0.9942, 129.8601, 0.0966, 11.3845), with estimated standard errors 0.0012, 1.9870, 0.0326,
and 2.1376, respectively. The autoregressive parameter is now close to 1 indicating a
strong degree of persistence. This can mainly be explained by a large degree of persis-
tence within each season. Figures 1 and 2 in the appendix show the smoothed estimates
of the time-varying team strengths together with the static results. The static strengths
βi have been normalized to add up to zero as suggested by Knorr-Held (2000) using the
1
P30
formula β̃i = β̂i − 30 j=1 β̂j . Similarly, the constants in the dynamic model αi have
been normalized to add up to zero, which makes the dynamic and static strengths com-
parable. Several things can concluded from the graphs. The change in the strengths at
the beginning of each season is notable and confirms that the increase in the variance for
the first game of each season basically introduces the possibility of a structural break in
strengths. Furthermore, the static and dynamic strengths are very close to each other
in most cases and lead to very similar rankings of the teams. In fact, for many teams
6
Detailed results for all unreported findings in this section are available from the author upon request.

12
and in many seasons the time-variations is not very pronounced as the variation of the
strength within a single season is very small compared to the between-team variation.
There are several exceptions to this. For example, in the 2008-2009 season the strength of
the Boston Celtics declines steadily, which can be explained by a sensational start of the
season, being 27-2, and a normalization of the performance thereafter. Another notable
example is the steady improvement of the young Oklahoma City Thunder in the 2008-
2009 season. Finally, there are several instances when well performing teams such as the
San Antonio Spurs become weaker towards the end of the regular season. This typically
can be explained by the fact that these teams are often qualified for the playoff early in
the season and decide to give their key players more rest before the playoffs begin.

3.2 Predictability
In this section we consider the problem of forecasting the game outcomes using the models
described above. This is done for regular season and for playoff games. The forecasts are
evaluated using three criteria. The first criterion is the mean square prediction error
(MSE):
n
X
∗

MSE = (yijk − ŷijk )2 ,

k=1
∗
where n is the number of out-of-sample observations. The second criterion is the mean
absolute prediction error (MAE),
n ∗
X
MAE = |yijk − ŷijk |,
k=1

and the third criterion is the fraction of games in which the correct winner was predicted.
Whereas the MSE is the obvious choice for the loss function given the fact that the error
terms can safely be considered to be Gaussian, the other two criteria are easy to interpret.
The models considered in the forecasting exercise are the homoscedastic baseline model
(OLS), the heteroscedastic model (Het.) estimated by MLE and the dynamic state space
model (Dyn.). As a benchmark the Las Vegas opening spreads (Spr.) for bets on the
games are considered. Furthermore, for all models we consider the combined forecasts
of the model based forecasts with the betting spreads. The forecasts are combined with
equal weights, as a preliminary analysis suggested that the two types of forecasts have
approximately the same variances and are highly correlated (> 0.9). Therefore more

13
 Table 3: Forecast evaluation
Regular Season
OLS Het. Dyn. Spr. OLS-Spr. Het.-Spr. Dyn.-Spr.
† † †
MSE 142.21 142.25 143.13 137.49 137.93 137.93 138.37
MAE 9.36† 9.36† 9.38† 9.17 9.20 9.20 9.22
Correct 0.682 0.681 0.684 0.692 0.693 0.692 0.694
Playoffs
OLS Het. Dyn. Spr. OLS-Spr. Het.-Spr. Dyn.-Spr.
† †
MSE 151.24 151.14 150.85 148.96 148.046 148.06 147.69
MAE 9.69† 9.68† 9.68 9.50 9.54 9.53 9.53
Correct 0.687 0.684 0.686 0.680 0.686 0.689 0.683
Note: Table 3 gives the predictive mean-square-error (MSE), mean-absolute-error (MAE) and fraction of
correctly predicted outcomes combined for all seasons from 2006 to 2014. The regular season results are
based on the second half of each season, with recursively estimated model parameters using all previous
games of each season. The playoff results are based on parameter estimates using all regular season games
each year. OLS refers to the homoscedastic model in (1), Het. to the heteroscedastic model in (5), Dyn.
to the dynamic state space model in (12), and Spr. to the Las Vegas opening spreads. The remaining
three columns refer to equally weighted forecast combinations. The results for the best performing model
are presented in bold. A † implies that the corresponding model is not included in the 95% model
confidence set.

sophisticated weighting schemes do not appear to be sensible here; see Timmermann

(2006) for extensions.
In order to decide whether the differences in forecasting accuracy across models are
statistically significant, the model confidence set (MCS) by Hansen et al. (2011) is com-
puted based on the MSE and MAE loss functions. The MCS is a set of models whose
forecasting performance is not significantly different considering a certain loss function
and it can be seen as an analogue to a confidence interval for competing (non-nested)
models. Thus it acknowledges the fact that it is unlikely that a single model outperforms
all the others, but that there are multiple models that perform equally well. The MCS
is determined using a sequence of hypothesis tests. It eliminates inferior models based
on the criterion of interest. P-values for the sequential tests are determined by bootstrap
procedure as described in Hansen et al. (2011) and references therein. A size of 5% and
10,000 bootstrap samples are used to compute the MCS.
The forecasting performance for the regular season data is analyzed as follows. The
first half of the regular season data, 615 games in a typical season, are used as the in-sample

14
period, whereas the remaining games constitute the out-of-sample period. The models
are re-estimated using an expanding window scheme to produce forecasts for the full out-
of-sample period. This is done for each season separately, but due to the presence of
season-dummies the results are identical to using multi-season data for the static models.
For the dynamic model the use of the multi-season data lead to significantly worse results
in terms of forecasting performance7 . For the forecast evaluation of the playoff games
the complete regular season data is used as the training period, but the models are not
re-estimated during playoff period. In the case of the dynamic state space, however, the
information set is updated throughout the playoffs and the predicted values based on the
Kalman filter are used as forecasts.
The results combining the predictions for all eight season are presented in Table 38 ,
with the results for the best performing model in each case bold. A † indicates that the
respective model is excluded from the model confidence set, indicating that its loss is
significantly worse than that of the best performing model. For the regular season games
the betting odds provide the best predictions in terms of MSE and MAE, although the
combined forecasts are very close and give very slight improvements for predicting the
correct outcomes. The pure model based forecasts perform significantly worse than the
betting odds. A similar picture emerges for the playoff games. Again, the Las Vegas
spreads provide forecasts that are hard to beat, but combining these forecasts with the
model based approaches can result in small improvements of the forecasts.
Overall, about 69% of the game outcomes can be predicted correctly and it seems
questionable that much better forecasts are possible, as a certain amount of random-
ness/unpredictability is an inherent part of sports. Furthermore, the Las Vegas spread
remains a benchmark for prediction that appears to be very difficult to beat. Comparing
the mean square prediction errors with the in-sample residuals variance, which is esti-
mated at about 130 for the different model specifications, it is clear that there is very
little room for improvement unless powerful predictors for game outcomes can be found.

4 Conclusion
In this paper we have reconsidered the modeling of team strength in professional bas-
ketball. The standard model was extended by allowing for team specific error variances
7
Results are available upon request.
8
The results for the individual season can be found in the online appendix.

15
and time-variation in team strength. These models were applied to the NBA games in
all eight seasons in the period 2006 until 2014. The results of the in-sample estimation
suggest some evidence of heteroscedasticity. Furthermore, the evidence for persistent
time-variation in teams strengths is much weaker than one would expect given injuries,
trades, and other factor influencing the team composition and chemistry. This is con-
firmed by the non-rejection of a test for no autocorrelation on the residuals of the static
models.
Besides the methods presented in this paper several other models were considered
that were not able to improve the model fit. In particular, a model treating offensive
and defensive strength separately in both a static and dynamic setting did not yield
improvements in fit. A random walk model was considered to avoid the estimation of
the persistence parameter. However, the variance of the errors of the state-equation was
estimated at zero, implying a constant strength. Furthermore, instead of the dynamic
state space model, an autoregressive observation driven approach for team strength in
which the residuals of the previous game were allowed to drive the current team strength
was considered. Given the lack of evidence for time-variation within single seasons, it is
not surprising that such a model could not outperform simpler static models.
The forecasting performance of the models was evaluated using regular season and
playoff games over all eight seasons. These finding confirm the common theme in the
literature on sports forecasting: it is difficult to beat the betting markets, which indicates
that they are efficient. However, combining the model based forecasts with betting spreads
can results in some improvements and the model confidence sets imply that the combined
forecasts are statically not worse than the one based solely on betting spreads.
Future research should address the question whether advanced basketball statistics
suggested in Kubatko et al. (2007) can be used to improve model based forecasts and
whether these statistics themselves are predictable. Furthermore, more detailed informa-
tion concerning injuries or suspensions of key players can be incorporated into the models
for forecasting purposes. Finally, it could be interesting to search for factors that can
explain the different team variances.

16
A Implementation of the Kalman filter
The latent state vector of interest is βi,ki for i = 1, . . . , 30, each of length equal to the
number of games played by each team. For analyzing a single season, e.g., ki = 1, . . . , 82.
The set of hyperparameters to be estimated consists of µi for i = 1, . . . , 30, φ, σ 2 and ση2i
for i = 1, . . . , 30. In case of homoscedasticity the latter parameter is the same for each
team. Finally, when allowing for a break in strengths at the beginning of each season one
additionally has to estimate σF2 G and the steps below have to be adjusted accordingly.
Let βi,ki |ki−1 be the predicted team strength of team i for game ki conditional on the
information at game ki − 1, whereas βi,ki |ki denotes the updated strength conditional on
information up to game ki . The variance of βi,ki conditional on information at game ki − 1
is denoted as Pi,ki |ki −1 , whereas the updated variance of team i is Pi,ki |ki . Then the steps
of the Kalman filter for game k between teams i and j with outcome yijk , being games ki
and kj for the teams, respectively, are as follows.

Prediction step:

βi,ki|ki −1 = µi + φβi,ki−1|ki −1
βi,kj |kj −1 = µj + φβi,kj −1|kj −1
Pi,ki|ki −1 = φ2 Pi,ki−1|ki −1 + ση2i
Pi,kj |kj −1 = φ2 Pi,kj −1|kj −1 + ση2j

Observation step:

ŷijk = λ + α(Bi − Bj ) + βi,ki |ki −1 − βi,kj |kj −1

Vijk = Pi,ki |ki−1 + Pi,kj |kj −1 + σ 2
êijk = yijk − ŷijk

Updating step:

βi,ki |ki = βi,ki |ki −1 + êijk Pi,ki |ki −1 /Vijk

βi,kj |kj = βi,kj |kj −1 − êijk Pi,kj |kj −1 /Vijk
2
Pi,ki |ki = Pi,ki|ki −1 − Pi,k i |ki −1
/Vijk
2
Pi,kj |kj = Pi,kj |kj −1 − Pi,k j |kj −1
/Vijk

17
The initial values are set to βi,1|0 = µi /(1 − φ) and Pi,1|0 = ση2i /(1 − φ2). The log-likelihood
contribution of the kth game is given by

1 1 ê2ijk
ln Lk = ln(2π) + ln(Vijk ) + .
2 2 2Vijk

This likelihood has to be maximized numerically over the set of hyperparameters to ob-
tain the maximum likelihood estimator of the model. Standard errors can be obtained
straightforwardly by numerical estimates of the information matrix.
Finally, if one is interested in the estimates of the strength conditional on the infor-
mation of the whole sample the Kalman smoother should be applied. Smoothed state
estimates, denoted as βi,ki |K , are obtained by iterating the following recursion on the
whole sample going from the last to the first game:
Pi,ki|ki
βi,ki |K = βi,ki |ki + φ (βi,ki +1|K − βi,ki+1|ki ).
Pi,ki +1|ki

B Teams strengths and rankings

18
 Table 4: Ranking, strength and team specific variances 2013-2014

2 2
2013-2014 rank OLS rank FGLS rank MLE β̂OLS β̂F GLS β̂M LE σ̂GLS σ̂M LE
San Antonio 1 1 1 8.84 9.64 9.66 79.24 70.32
LA Clippers 2 2 2 7.92 8.21 8.27 82.13 74.79
Oklahoma City 3 3 3 7.48 7.16 7.36 59.27 69.95
Houston 4 5 5 5.86 6.16 6.37 70.48 54.04
Golden State 5 4 4 5.82 6.39 6.50 56.22 55.69
Portland 6 7 7 5.20 5.14 5.25 49.87 50.38
Miami 7 6 6 5.11 6.10 6.20 64.17 68.75
Indiana 8 9 9 4.53 4.65 4.78 88.06 85.47
Phoenix 9 8 8 3.95 4.71 5.00 43.55 36.20
Minnesota 10 12 11 3.94 4.17 4.16 75.88 63.61
Dallas 11 10 10 3.68 4.34 4.27 22.79 19.12
Toronto 12 11 12 3.28 4.26 4.14 0.77 2.45
Memphis 13 13 13 2.93 2.52 2.84 43.24 65.23
Chicago 14 14 14 1.81 2.07 2.21 95.17 111.65
Washington 15 15 15 1.47 1.60 1.78 39.32 50.19
Charlotte 16 16 16 0.04 0.82 0.84 67.37 84.83
Atlanta 17 19 20 0.00 0.00 0.00 46.42 59.23
New York 18 20 19 -0.46 -0.05 0.10 154.23 157.26
Denver 19 17 17 -0.58 0.30 0.45 98.23 98.42
Brooklyn 20 18 18 -0.63 0.17 0.22 109.36 89.03
Sacramento 21 21 21 -1.07 -0.33 -0.10 76.78 73.75
New Orleans 22 22 22 -1.20 -1.11 -1.30 23.80 24.21
Cleveland 23 23 23 -2.94 -2.54 -2.43 85.04 74.78
Detroit 24 24 24 -3.28 -3.17 -3.05 71.65 64.93
Boston 25 25 25 -4.05 -3.25 -3.09 46.00 36.98
LA Lakers 26 26 26 -4.31 -4.08 -3.99 102.43 101.73
Orlando 27 27 27 -4.99 -4.65 -4.67 32.04 24.60
Utah 28 28 28 -5.36 -5.19 -5.05 77.77 85.48
Milwaukee 29 29 29 -7.51 -7.02 -6.98 10.07 15.82
Philadelphia 30 30 30 -9.91 -9.72 -9.57 96.27 101.89
Note: Table 4 presents the estimated ranking, team strengths and team specific error variances based on
models (1) and (5) in the paper. The heteroscedastic model is estimated either by FGLS or by MLE.

19
20

Figure 1: Team strengths over time 1 (Dynamic model solid lines, static model dashed lines)
21

Figure 2: Team strengths over time 2 (Dynamic model solid lines, static model dashed lines)
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