Market Madness? The Case of Mad Money

37 Pages Posted: 16 Dec 2005 Last revised: 7 Nov 2010

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Caroline Sasseville

Kellogg School of Management - Department of Finance

Jared Williams

University of South Florida

Date Written: October 20, 2010

Abstract

We use the popular television show Mad Money hosted by Jim Cramer to test theories of attention and limits to arbitrage. Stock recommendations on Mad Money constitute attention shocks to a large audience of individual traders. We find that stock recommendations lead to large overnight returns which subsequently reverse over the next few months. The spike-reversal pattern is strongest among small, illiquid stocks that are hard-to-arbitrage. Using daily Nielsen ratings as a direct measure of attention, we find the overnight return is strongest when high income viewership is high. We also find weak price effects among sell recommendations. Taken together, the evidence supports the retail attention hypothesis of Barber and Odean (2008) and illustrates the potential role of media in generating mispricing.

Keywords: market efficiency, Mad Money, Jim Cramer, stock recommendations, CNBC, investor attention

JEL Classification: G14, G11, C15

Suggested Citation

Engelberg, Joseph and Sasseville, Caroline and Williams, Jared, Market Madness? The Case of Mad Money (October 20, 2010). Available at SSRN: https://ssrn.com/abstract=870498 or http://dx.doi.org/10.2139/ssrn.870498

Joseph Engelberg (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Caroline Sasseville

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

Jared Williams

University of South Florida ( email )

Tampa, FL 33620
United States

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