We propose an innovative approach to model and predict the outcome of football matches based on the Poisson autoregression with exogenous covariates (PARX) model recently proposed by Agosto, Cavaliere, Kristensen, and Rahbek (Journal of Empirical Finance, 2016, 38(B), 640-663). We show that this methodology is particularly suited to model the goal distribution of a football team and provides a good forecast performance that can be exploited to develop a profitable betting strategy. This paper improves the strand of literature on Poisson-based models, by proposing a specification able to capture the main characteristics of goal distribution. The betting strategy is based on the idea that the odds proposed by the market do not reflect the true probability of the match because they may also incorporate the betting volumes or strategic price settings in order to exploit betters' biases. The out-of-sample performance of the PARX model is better than the reference approach by Dixon and Coles (Applied Statistics, 1997, 46(2), 265-280). We also evaluate our approach in a simple betting strategy, which is applied to English football Premier League data for the 2013-2014, 2014-2015, and 2015-2016 seasons. The results show that the return from the betting strategy is larger than 30% in most of the cases considered and may even exceed 100% if we consider an alternative strategy based on a predetermined threshold, which makes it possible to exploit the inefficiency of the betting market.
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