Short Selling Behavior and Mad Money


  • We thank Robert Battalio, editor, and an anonymous referee for insightful comments.

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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.