We thank Robert Battalio, editor, and an anonymous referee for insightful comments.
Short Selling Behavior and Mad Money
Article first published online: 4 JAN 2012
© 2012, The Eastern Finance Association
Volume 47, Issue 1, pages 65–89, February 2012
How to Cite
Hobbs, J., Keasler, T. R. and McNeil, C. R. (2012), Short Selling Behavior and Mad Money. Financial Review, 47: 65–89. doi: 10.1111/j.1540-6288.2011.00321.x
- Issue published online: 4 JAN 2012
- Article first published online: 4 JAN 2012
- short sale;
- stock recommendations;
- Mad Money;
- behavioral bias;
We examine 1,234 buy recommendations from Jim Cramer's Mad Money television show. Consistent with prior research, we report positive abnormal returns immediately after buy recommendations, followed by a reversal, indicative of an overpricing event. We also find a marked increase in short selling. Our results show a positive association between shorting and the buy recommendations even after controlling for factors shown in the literature to influence shorting. We do not find similar effects after sell recommendations. These results suggest that short sellers act to exploit short-term overpricing arising from behavioral biases of some investors.