Jim Cramer’s Mad Money : Effects on Stock Returns

This paper examines the abnormal stock returns generated by the primary stock recommendations of Jim Cramer on his television show Mad Money between the dates of July 8, 2005 and February 2, 2006. Mad Money is broadcast on CNBC, and is currently its highest rated programming, drawing over 380,000 nightly viewers. The average overnight abnormal stock return generated by a Cramer recommendation is 7.624%. Market capitalization, and short interest as a percent of float, prove to have a negative statistically significant relationship on the magnitude of the effect Cramer causes. The average increase in volume on the trading day following the previous night’s recommendation is 643.79%. Finally, Cramer often cautions viewers NOT to buy the securities he mentions into the overnight euphoria, but rather to wait and let the stock settle before buying. This paper also examines the average return of the stocks Cramer recommends over different combinations of months and buying criteria. Over the medium to long run, Cramer’s recommendations do outperform the major indices on average.