Market Madness? The Case of Mad Money

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 which 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 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 (2008) and illustrates the potential role of media in generating mispricing. *We thank Brad Barber (the editor), the associate editor, and two anonymous referees for their suggestions. We have also benefited from discussions with Flavio de Andrade, Nick Barberis, Fritz Burkhardt, Jennifer Conrad, Grant Farnsworth, Paul Gao, Dave Haushalter, Zhiguo He, Andrew Hertzberg, Ravi Jagannathan, Pab Jotikasthira, David Matsa, Adam Reed, Ed Van Wesep, and Annette Vissing-Jorgensen. ‡ Contact: Joseph Engelberg, Kenan-Flagler Business School, University of North Carolina at Chapel Hill, (Email) [email protected]; Caroline Sasseville, Barclays Global Investors; and Jared Williams, Smeal College of Business, Penn State University, 344 Business Building (Email) [email protected].