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Market Madness? The Case of Mad Money

Author

Listed:
  • Joseph Engelberg

    (Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

  • Caroline Sasseville

    (BlackRock, San Francisco, California 94105)

  • Jared Williams

    (Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

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.

Suggested Citation

  • Joseph Engelberg & Caroline Sasseville & Jared Williams, 2012. "Market Madness? The Case of Mad Money," Management Science, INFORMS, vol. 58(2), pages 351-364, February.
    • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:2:p:351-364
    DOI: 10.1287/mnsc.1100.1290
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    References listed on IDEAS

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