Market Madness? The Case of Mad Money

Joseph Engelberg, Caroline Sasseville () and Jared Williams ()
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Caroline Sasseville: BlackRock, San Francisco, California 94105
Jared Williams: Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802

Management Science, 2012, vol. 58, issue 2, 351-364

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 that 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 that 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 (Barber, B., T. Odean. 2008. All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Rev. Financial Stud. 21 (2) 785-818) and illustrates the potential role of media in generating mispricing. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.

Keywords: finance; asset pricing; investment criteria; media; attention (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (46)

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