channao
08-26-2006, 03:30 AM
Can You Make Money From Jim Cramer's Picks?
Saw this article on http://www.bearmode.com
An article on the Internet Stock Blog states cites a study by the Department of Finance at the Kellogg School of Management. In summary:
"Results of the study
When Engelberg and his colleagues tested the market data for each of the 246 Mad Money buy recommendations, they discovered the following consistent outcomes for Cramer's stock picks:
- significant short-term price increases (between 1.96% and 5.19%) after he recommended them, but those gains were nearly all reversed within 12 days after the episode;
- large increases in trading volume and buy/sell imbalance over the short term (trading volume for small firms was 3 times larger than normal on the day of the recommendation, nearly 9 times normal on day 1 following the recommendation and 4.5 times normal on day 2); but
- no significant change in bid/ask spreads -- this suggests that the market makers and institutional investors did not regard Cramer's blessing as improving the value of the stocks in question.
When the Kellogg researchers discovered this consistent pattern of Cramer recommendation/price jump/price decline, they realised it created a different opportunity to ring the register. To quote page 9 of their paper:
Given the extremely high abnormal returns from selling Cramer's recommended stocks on day 1 and buying them back a few days later, we expect some traders to be aware of this strategy and to exploit the mispricing by shorting the recommended stocks.
Original source found at http://internet.seekingalpha.com/article/11461
Saw this article on http://www.bearmode.com
An article on the Internet Stock Blog states cites a study by the Department of Finance at the Kellogg School of Management. In summary:
"Results of the study
When Engelberg and his colleagues tested the market data for each of the 246 Mad Money buy recommendations, they discovered the following consistent outcomes for Cramer's stock picks:
- significant short-term price increases (between 1.96% and 5.19%) after he recommended them, but those gains were nearly all reversed within 12 days after the episode;
- large increases in trading volume and buy/sell imbalance over the short term (trading volume for small firms was 3 times larger than normal on the day of the recommendation, nearly 9 times normal on day 1 following the recommendation and 4.5 times normal on day 2); but
- no significant change in bid/ask spreads -- this suggests that the market makers and institutional investors did not regard Cramer's blessing as improving the value of the stocks in question.
When the Kellogg researchers discovered this consistent pattern of Cramer recommendation/price jump/price decline, they realised it created a different opportunity to ring the register. To quote page 9 of their paper:
Given the extremely high abnormal returns from selling Cramer's recommended stocks on day 1 and buying them back a few days later, we expect some traders to be aware of this strategy and to exploit the mispricing by shorting the recommended stocks.
Original source found at http://internet.seekingalpha.com/article/11461