When I go to the gym in the evening (which I don’t do nearly as often as I should), I somehow always end up at one of the elliptical trainers in front of the television showing CNBC. This means that I am reasonably familiar with Jim Cramer’s show Mad Money. Stock picking isn’t really my thing, but I find the show overall to be pretty entertaining. (Okay fine, I suppose I wouldn’t mind taking over for Maria Bartiromo as the “Money Honey”.) Apparently the show is also a topic of interest to behavioral finance people- Joey Engelberg, one of my fellow graduate students at Kellogg, recently presented a paper that shows a short-term spike in stock price and trading volume for those stocks recommended during Jim Cramer’s “Lightning Round”. Luckily, we have hedge funds to keep our markets efficient (mild sarcasm), and Engelberg and his co-authors find that the effect dissipates quickly. So Jim Cramer can drive the market, or at least he could before people caught on to this effect, but can he pick stocks?
Apparently Reuters has taken up the issue, and it’s analysts show that Jim Cramer’s picks haven’t beaten the market over the last two years. Hmph…and here I thought I was being at least a little smart for not watching Friends reruns.