Blogs & Comment

How to profit from Cramer

There appears to be nothing to be gained from following the stock picks of CNBC Mad Moneyhost Jim Cramer, according to a number of studies — particularly Bolster andTrahan (2009), Keasler and McNeil (2010) and Neumann and Kenny (2007). They find his recommendations tend, on average, to do no better than the market if not worse.
However, one study does say viewers can benefit from Cramers advice. The info issort of buried away in the studys other findings but it’s definitely there for those who take the time to delve intothe paper. As Professors Bryan Lim and Joao Rosario write in Applied Financial Economics, the way to make money from Cramers show is buy what he recommends selling, especially in the case of small-cap stocks.
His television audience is rather large so when viewers respond to his calls, prices of the named stocks move dramatically at the opening bell on the trading day after Cramers evening show appears. The price jumps from his buy recommendations dont necessarily reverse in a systematic way but the price plunges produced by his sell recommendations do seem to have a tendency to recoverthe drop within a month or so.
Of course, whether or notthis effect still exists is a valid question — especially after the Lim and Rosario study has published it for all the hedge-fund operators to read about. So tread carefully and do your due diligence before risking money.