We document market inefficiency in the
in the days following the buy recommendations of Jim Cramer, host of
the popular CNBC show Mad Money. The average cumulative abnormal
overnight return for the smallest quartile of recommended stocks is
5.19%, and these returns completely disappear within 12 trading days.
We also find that trading volume, buy-sell imbalance, and short sales
volume are all significantly higher than normal on the day following
Cramer’s recommendations. These findings allow us to test hypotheses
about the behavior of different types of traders. Finally, our GMM
estimates of the components of the bid-ask spread suggest that market
makers are aware of Cramer’s recommendations and anticipate the order
flow imbalance following Cramer’s recommendations.
Here is the paper.