International Journal of Managerial Finance

The impact of Mad Money recommendations during bull and bear markets
Adam J. Roszkowski Nivine Richie
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IJMF
12,1
52
Received 15 April 2014
Revised 16 January 2015
27 May 2015
Accepted 9 June 2015
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International Journal of Managerial
Finance
Vol. 12 No. 1, 2016
pp. 52-70
© Emerald Group Publishing Limited
1743-9132
DOI 10.1108/IJMF-04-2014-0053
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1743-9132.htm
The impact of Mad Money
recommendations during
bull and bear markets
Adam J. Roszkowski and Nivine Richie
Department of Economics and Finance,
University of North Carolina Wilmington, Wilmington, North Carolina, USA
Abstract
Purpose – The purpose of this paper is to examine semi-strong market efficiency by observing the
behavioral finance implications of Jim Cramer’s recommendations in bull vs bear markets. The authors
extend the literature by analyzing investor reaction through the lenses of prospect theory,
overreaction, and herding.
Design/methodology/approach – The authors test for abnormal returns in response to Mad Money
buy and sell recommendations. The authors use a sample of buy and sell recommendations
from MadMoneyRecap.com from July 28, 2005 through February 9, 2009. The 3.5-year time
period is the most recent and comprehensive set of Mad Money recommendations that has been
tested to date.
Findings – The results indicate market inefficiency at the semi-strong level. Furthermore, the findings
highlight the loss aversion tendencies of investors in regards to prospect theory of Kahneman and
Tversky (1979) as well as the disposition effect of Shefrin and Statman (1985). Evidence also exists
consistent with the herding and overreaction hypotheses.
Practical implications – The evidence suggests contrarian behavior in which investors respond
positively to good news in bad times – perhaps, in effort to stay the course and at least break even.
This behavior may suggest that losers tend to hold on to losses in hopes of recouping them.
Thus, positive information in bad times could further persuade market participants to hang on to or
buy more of losers, while also persuading non-shareholders to buy in as well.
Originality/value – Though other studies including Kenny and Johnson (2010) have estimated
abnormal returns in response to analyst recommendations, to the knowledge, none has examined
behavioral implications of investor reaction to buy and sell recommendations in both bull and bear
markets. Furthermore, the study captures a longer bull and bear market and covers two definitions of
such markets.
Keywords Herding, Overreaction, Market efficiency, Event study, Prospect theory
Paper type Research paper
He’s smart enough to know what he’s doing. “Mad Money” delivers a very dangerous
message – that individual investors can beat the market with momentum-driven, high-octane
trading strategies (David Swenson, Yale University Endowment Fund Manager).
1. Introduction
This study is not intended to scrutinize the Mad Hatter behind the Mad Money
machine. Jim Cramer’s show, which airs on CNBC weekdays at 6:00 p.m. since 2005, is
intended to educate the casual investor through the application of fundamental and
technical market analysis. He seeks to entertain, through elaborate sounds, voices, and
a signature “Booyah” catch phrase, but most of all to make viewers money, for “there’s
always a bull market somewhere” and Cramer’s promise is to find it for his audience.
JEL Classification — G-2, G-14
 Jim Cramer’s performance as a stock picker is not the focus of this study. For starters, Impact of
he plays with an open hand. His picks can be seen five days prior to their execution and Mad Money
must be held for at least 30 days. His charitable trust portfolio can be viewed via
Actions AlertPlus at www.thestreet.com. Rather, this study aims to decipher investor
behavioral patterns while controlling for market cycles. In other words, what do market
reactions following his recommendations indicate about investor psychology?
A main motivation for using Jim Cramer’s recommendations is to overcome the 53
potential conflict of interest problem associated with affiliated analysts addressed by
Michaely and Womack (1999). Their study found affiliated underwriters tended to
provide a rosier picture, offering larger quantities of buy recommendations than
unaffiliated analysts. The evidence indicated that buy recommendations of unaffiliated
analysts outperformed those of affiliated analysts. Jim Cramer, although affiliated with
CNBC, is an unaffiliated analyst as he must specifically disclose securities which he
holds in his charitable trust portfolio on his show.
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Some viewers and market participants may suggest that Cramer’s recommendations
and subsequent price movements are nothing more than noise. According to the
behavioral asset pricing model by Shefrin and Statman (1994), the market is comprised of
information traders who are “rational processors of information,” while noise traders
“do not process information rationally” (p. 330). Ramiah and Davidson (2007), on the
other hand, suggest that information traders and noise traders can both make trading
mistakes based on how they form their expectations, leading to market underreaction or
overreaction. In Ramiah and Davidson’s (2007) framework, information traders form
expectations based on the arrival of information, but can interpret that information
incorrectly. Noise traders, however, do not form their expectations based on the arrival of
information and rather trade for other reasons.
In Shefrin and Statman’s (1994) behavioral framework, noise traders are guilty of two
irrational errors: overweighting of recent information and underweighting of distant
information, and applying incorrect probabilities to potential outcomes. The first error is
related to the behavioral bias of anchoring and hindsight bias whereas the second is
sometimes called the “gambler’s fallacy” or the “law of small numbers.” According to
Shefrin and Statman (1994), “Whereas base rate underweighting leads to “positive
feedback” forecasts in which recent events are expected to continue, gambler’s fallacy leads
to “negative feedback” forecasts in which recent events are expected to reverse” (p. 332).
No doubt, Mad Money viewers are likely to be noise traders and not informed
traders. One behavioral finance implication of the existence of such noise traders is that
they have an impact on the market, in spite of the existence of informed traders. In fact,
according to Shefrin and Statman (1994), “Noise traders act as a second driver and they
steer the market away from price efficiency” (p. 346). Behavioral biases and their
subsequent positive or negative feedback may be magnified in times of positive and
negative investor sentiment. Market sentiment is often captured by surveys asking
investors whether they are bullish, bearish, or neutral.
Though various studies have observed Mad Money recommendations in terms of
performance and impact on share prices, there is little empirical evidence regarding the
behavioral finance implications of Jim Cramer’s recommendations in bull vs bear markets.
We test semi-strong market efficiency by observing the recommendations of Jim
Cramer, the charismatic, comedic, and controversial host of CNBC’s Mad Money.
We extend the literature by analyzing the effect of his recommendations on share
prices in bull and bear markets and by examining investor reaction through the lenses
of prospect theory, overreaction, and herding.
 IJMF We test for abnormal returns in response to Mad Money buy and sell
12,1 recommendations from July 28, 2005 through February 9, 2009. Our results indicate
market inefficiency at the semi-strong level. Furthermore, our findings highlight the
loss aversion tendencies of investors in regards to prospect theory of Kahneman and
Tversky (1979) as well as the disposition effect of Shefrin and Statman (1985). Evidence
also exists consistent with the herding and overreaction hypotheses.
54
2. Related literature
The notion that markets are efficient has been a point of controversy since Eugene Fama
proposed the efficient market hypothesis (EMH) in the mid-1960s. The semi-strong form
of the EMH assumes that public information of any kind, in this case analyst equity
recommendations, is promptly and correctly factored into the share price, without any
opportunity for an investor to earn an abnormal return (Fama, 1970). Malkiel’s (1975)
“random-walk” proposition supports the theoretical basis of EMH. Asset prices are said
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to follow no pattern at all, with all pricing information being immediately reflected.
Skeptics include Grossman and Stiglitz (1980) who contend share prices cannot
accurately reflect all available data, or else information gatherers would not have
profitable opportunities.
The market efficiency literature most closely related to our research question
includes studies of the impact of analyst recommendations on share prices and
behavioral finance.

2.1 Impact of analyst recommendations on share prices

The question of what impact analyst recommendations have on share prices was first
proposed by Cowles (1933) who sought to determine the forecasting power of analysts.
From there, a growing body of literature provides evidence to suggest the existence of
profitable trading strategies and market inefficiencies associated with analyst
recommendations. Barber and Loeffler (1993), Womack (1996), Barber et al. (2001),
Jegadeesh et al. (2004), and Barber et al. (2006) find evidence of abnormal returns when
testing recommendations from other analyst sources. Neumann and Kenny (2007),
Keasler and McNeil (2010), Bolster et al. (2012), Kenny and Johnson (2010), and
Engelberg et al. (2012) find evidence of abnormal returns in response to Mad Money
recommendations. On the contrary, findings from Kim et al. (1997), and Busse and
Green (2002) support semi-strong efficiency in regards to the effect of analyst
recommendations on share prices.
Barber and Loeffler (1993) find evidence of abnormal returns due to “naïve buying
pressure” while observing the Wall Street Journal’s “Dartboard” column. Womack
(1996) discovers analysts’ upgrades and downgrades correspond with positive and
negative abnormal returns. Barber et al. (2001) use a sample of over 350,000
recommendations from 1985 to 1996 to conclude that acting on recommendations by
buying favorable and shorting least favorable recommendations results in positive
abnormal returns. In addition, Jegadeesh et al. (2004) find evidence that changes in
analyst recommendations have a significant effect on future returns.
The idea that analyst recommendations lead to semi-strong inefficiency is
contradicted by Busse and Green (2002) who claim that profitable trading strategies
disappear seconds after the broadcasting of televised analyst recommendations.
Similarly, findings from Kim et al. (1997) support the notion that the type of media
broadcast determines an analyst’s effect by concluding that recommendations from
Dow Jones newswire have no effect on share prices.
 Taken a step further, Barber et al. (2006) discover the distributions of buy, hold, and Impact of
sell ratings among analysts can serve as performance predictors: those with the lowest Mad Money
percentage of buy ratings tend to have superior “buy” performance relative to those with
larger percentages. Such behavior may be evidence of an inherent conflict of interest
among affiliated vs non-affiliated analysts. Surely a sell-side analyst could possess
ulterior motives or incentives that differ from those of a non-affiliated analyst. The work
of Dugar and Nathan (1995) finds that affiliated analyst recommendations tend to be 55
more optimistic than unaffiliated – suggesting a sell-side conflict of interest. According to
Michaely and Womack (1999), buy recommendations from affiliated underwriters
perform worse than those of unaffiliated. The authors propose two possible explanations
for this bias: that underwriters are incentivized to portray firms with a strategic interest
in a positive light, or that the bias is “cognitive” and “unintentional.”
A number of empirical studies analyze the effect of Mad Money recommendations on
share prices since the show’s premiere on March 14, 2005. Engelberg et al. (2012) confirm
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that trading volume increases on days following picks, and advise investors to wait
before making purchases due to short-term price fluctuations. These results correspond
with those of Keasler and McNeil (2010) who observe narrowing bid-ask spreads due to
volume spikes on the day following the announcement. As for profitable trading
strategies following Cramer’s advice, Neumann and Kenny (2007) determine that
abnormal returns can be obtained by investors who meet higher capital requirements;
however, short-term trading strategies on average are not found to be profitable.
In terms of the impact of specific recommendations on investment performance,
Bolster and Trahan (2009) find sell recommendations have a greater impact due to price
momentum effects, and conclude that overall, Cramer’s stock picking performance is
average. Furthermore, when controlling for firm size, Lim and Rosario (2010) find
Cramer’s recommendations have a more profound effect on small cap vs large cap
equities, and contrary to Bolster et al. (2012), the impact is greater with sells than buys.
In their sample of analyst recommendations from G7 countries, Jegadeesh and Kim
(2006) find that buy ratings outnumber sell ratings in bull markets, with sell ratings
outnumbering buys in bear markets. Engelberg et al. (2012) use Nielsen ratings as a
measure of attention, and find evidence of “media-induced mispricing,” but find no
evidence of profitable strategies in the long term.
Overall, empirical findings on the effect of analyst recommendations on share prices
are mixed. Some evidence is consistent with semi-strong efficiency, while others find
abnormal returns can be earned from following recommendations.

2.2 Behavioral finance implications

To explain investor behavior in different market conditions, researchers suggest
various behavioral biases. Kahneman and Tversky (1979) propose prospect theory
which contends that investors face loss aversion; investors are more negatively
affected by losses than they are positively affected by gains. The disposition effect,
a subset of prospect theory proposed by Shefrin and Statman (1985), states that market
participants tend to sell winning stocks too quickly in an effort to avoid losses, and hold
losers too long in an effort to recoup losses. This stands in contrast to expected utility
theory (Schoemaker, 1982) which weights gains and losses equally.
The overreaction hypothesis (De Bondt, 1993) states that investors expect past
trends to repeat themselves, experiencing optimism in bull markets and pessimism in
bear markets. Shleifer and Summers (1990) describe overreaction as a participant’s
likelihood to place a greater emphasis on new information, similar to De Bondt and
 IJMF Thaler (1985) who claim overreaction occurs in response to “unexpected” and
12,1 “dramatic” news events. Welch (2000) believes news tends to have a more profound
effect in optimistic markets than in pessimistic markets due to the term Bikhchandani
et al. (1992) refers to as “fragility.” Markets are assumed to be more fragile in bull
periods due to their tendency to “aggregate less information” than bear periods. Welch
contends this lack of information can lead to herding. The cousin of an overreactor
56 would likely be a herder, one who purchases and sells securities with the crowd while
basing decisions on past returns. Welch explains there is no theoretical explanation for
larger propensities of herding in bull vs bear markets. Shleifer and Summers (1990) find
individual investors who follow the same indicators may participate in herding
activity, and Grinblatt et al. (1995) find evidence of herding in mutual funds.

3. Hypotheses
Investor reaction to analyst recommendations in different market conditions can
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help us investigate the extent to which behavioral biases drive investment choices.
Our primary research questions are:
RQ1. Whether abnormal returns exist in response to Mad Money buy and sell
recommendations?
RQ2. Whether abnormal returns in response to Mad Money recommendations differ
in bull and bear markets?
Consequently, we investigate the loss aversion hypothesis, the overreaction hypothesis,
and the herding hypothesis.

3.1 Loss aversion hypothesis

Prospect theory suggests that investors are loss-averse and will feel the pain of bear
markets more than the joy of bull markets. The disposition effect of Shefrin and Statman
(1985) expands prospect theory, originally introduced by Kahneman and Tversky (1979),
and describes investors’ tendency to realize their gains but postpone losses.
The disposition effect has implications for analyst recommendations and leads us to
expect buy recommendations to have greater impact on stock returns than sell
recommendations as investors trade on buys but forego trades on sell recommendations.
Moreover, Engelberg et al. (2012) and Barber and Odean (2008) suggest that sell
recommendations can be more difficult to act for investors because selling shares of an
already-owned security is often easier than entering a short position. On the contrary,
Bolster and Trahan (2009) find Cramer’s sell recommendations have a greater impact on
share prices due to price momentum effects. We take each of these alternatives into
consideration. If prospect theory holds true, we expect greater abnormal returns to occur
after buy recommendations than sell recommendations. Furthermore, investor tendency to
realize gains quickly may be visible in different market cycles. Therefore, we expect that
the abnormal returns following buy recommendations in bear markets will exceed
abnormal returns following buy recommendations in bull markets as investors take gains
in down markets.

3.2 Overreaction hypothesis

According to the overreaction hypothesis described by De Bondt (1993), abnormal
returns could stem from an investor’s optimism in good times and pessimism in bad
times. This overreaction and belief that past trends will repeat themselves could cause
 a larger response to buy recommendations in bull markets and a greater response to Impact of
sell recommendations in bear markets. Shleifer and Summers (1990) describe Mad Money
overreaction as a participant’s likelihood to place a greater emphasis on new
information – similar to De Bondt and Thaler (1985) who claim overreaction occurs in
response to “unexpected” and “dramatic” news events. Extended periods of abnormal
returns in the opposite direction of an initial abnormal return may suggest evidence of
overreaction; likewise, the persistence of abnormal returns in the same direction over 57
time may indicate under reaction.

3.3 Herding hypothesis

According to Shleifer and Summers (1990) individual investors who follow the same
indicators (analyst recommendations in our case) may participate in herding activity –
that is, behavior characterized by following the advice of Cramer. When observing
herding activity among analysts, Welch (2000) finds that greater degrees of herding
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occurs in bull vs bear markets, but offers no theoretical explanation as to why.

Furthermore, evidence from Grinblatt et al. (1995) supports the notion of mutual funds
engaging in herding activity, or purchasing and selling securities at the same time. In
the framework of this hypothesis, we expect significant evidence of abnormal returns
in response to buy recommendations and sell recommendations.

4. Data and research design

Firm-level return and market proxy data are gathered from the Research Insight Global
Vantage database from 2004 to 2010. We use a sample of buy and sell recommendations
from MadMoneyRecap.com from July 28, 2005 through February 9, 2009[1]. The 3.5-year
time period is the most recent and comprehensive set of Mad Money recommendations
that has been tested to date. Other studies including Bolster and Trahan (2009), and
Engelberg et al. (2012) use a combination of YourMoneyWatch.com[2] buy
recommendations and MadMoneyRecap.com sell recommendations in their analyses.
Engelberg et al. (2012) noted that YourMoneyWatch.com, a site unaffiliated with Jim
Cramer or Mad Money, uses a slightly stricter set of criteria than MadMoneyRecap.com
in determining what constitutes a recommendation. Though the recommendations are
not drastically different, as explained in their study, for continuity purposes we used both
buy and sell recommendations obtained from the single MadMoneyRecap.com source.
Our study is most closely related to Kenny and Johnson (2010) where they study
Mad Money recommendations issued from September to December, 2008. Their study
is very limited in that it is restricted to three months of data during an exclusively bear
market. During their sample period, Cramer issued 187 recommendations, of which 126
were first time recommendations. The authors focussed on buy recommendations only,
and chose 20 observations at random to study.
Our data consist of 1,581 Mad Money buy and sell recommendations over a 3.5-year
sample period of which 903 are buys and 678 are sells. The MadMoneyRecap.com data
set contains recommendations from the “Lightning Round,” the segment of the
show where viewers call in seeking Cramer’s advice on a particular stock, and also
non-Lightning Round recommendations which can come at any other point of the show.
We use buy and sell recommendations in our event study regardless of the particular
segment in which they were revealed. To avoid contamination of events, we follow the
practice of Kenny and Johnson (2010) among others and only include the first instance of a
buy or sell in our sample, excluding all subsequent recommendations for the same
company. Though other studies including Keasler and McNeil (2010), and Lim and
 IJMF Rosario (2010) have separated picks by Lightning Round and non-Lightning Round,
12,1 we used the first time a stock was mentioned on the show as the best estimate of an event.
The impact of analyst recommendations is part of the broader literature related to
the arrival of firm-specific information and its impact on stock returns. Several
empirical studies gather public and private information from various news sources.
Kalev et al. (2004) use the number of news announcements as a proxy for the arrival of
58 public information and estimate the impact of information on volatility of intraday
stock returns. Vlastakis and Markellos (2012) use weekly internet search volume trends
to proxy the demand for information, and find that the demand for information is
directly related to volatility. Riordan et al. (2013) examine the impact of newswire
messages on intraday price discovery. Nofsinger (2001) considers the arrival of firm-
specific news released in the Wall Street Journal and finds that it increases investor
trading. Vega (2006) estimates the effect of information on market efficiency by
examining the impact of private and public information on post-earnings
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announcement drift. She uses Easley and O’Hara’s (1992) private information trading
measure PIN to estimate the arrival of private information and she uses several
measures of public information based on the mentions of firms in the news. Her results
show that PIN is inversely related to firm size, and thus she uses firm size as a control
variable in her empirical analysis. Firm size enters our research design as one of the
common risk factors included in the Fama and French (1993) model.
To test the impact of recommendations in bull and bear markets, market cycles must
first be defined. According to Candelon et al. (2008), no consensus exists on bull and bear
market definition in the academic literature. Burns and Mitchell (1946) define bull (bear)
markets as a period of substantial rise (decline) from a preceding trough (peak), but the
term “substantial” is not clear. Other studies including, Harding and Pagan (2002) and
Pagan and Sossounov (2003), use statistical models including Markov Chain, GARCH,
EGARCH, and a random walk to determine market turning points and cycles.
Unlike the Kenny and Johnson (2010) study that considers market reactions in a single
bear market, we examine market reactions in both bull and bear markets. We define bull
and bear markets using two different rules to identify what Burns and Mitchell (1946)
describe as “substantial” periods of prolonged rises and falls. Since our data set includes
a pre and post-financial crisis window, our first rule identifies the peak S&P 500 closing
price on October 9, 2007 as our breakpoint, and we label the period before October 9, as
Bull1 and the period after October 9, as Bear1 (Figure 1). Our second method identifies
multiple bull and bear periods using a three-up week and three-down week rule. Using
weekly S&P 500 closing price data, bull periods began on the first week of a three
consecutive week uptick in closing prices. Bear periods, respectively, are marked by three
consecutive weeks of falling prices. Neither a bull nor a bear period is terminated until a
three consecutive week rise or fall in the opposite direction occurs. This identifies with
five bull (identified as Bull2) and five bear (identified as Bear2) periods over our sample
period of July 28, 2005-February 8, 2009. A summary of buy and sell recommendation for
the full sample and Bull1, Bull2, Bear1, and Bear2 is presented in Table I.
To estimate the market reaction surrounding an announcement, we use event study
methodology and control for common risk factors using the Fama and French (1993)
three-factor model to estimate expected returns for each stock. The abnormal return
(Ajt) is estimated for firm j on day t as:
h i
Ajt ¼ Rjt  a^ j þ b^ j Rmt þ s^j SM Bt þ h^ j H M Lt
 S&P 500 Weekly Closing Prices Impact of
6/28/2005 - 2/9/2009
1,700 Mad Money

1,500

59

1,300

1,100
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900
Bull 1 S&P 500

Bear 1 Oct 9, 2007

700 Figure 1.
Bull 1 and bear 1
06

08
6
6
5

05

7
7

07

00

00
00
00
00

00
00
20

20
20

20

description
/2

/2
/2
/2
/2

/2
/2
1/

1/
8/

1/

29

30
30
28
28

30
28
/3

/3
/2

/3

2/

6/
6/
2/
6/

6/
2/
10

10
10

10

Full sample Buy Sell

(n ¼ 1,581) 903 678

Bull 1 816 575
Bear 1 87 103
Bull 2 718 520
Bear 2 185 158
Notes: Number of buy and sell recommendations presented for July 28, 2005 through February 9, 2009
sample period. Bull 1 and Bear 1 are defined as the sample period before and after October 9, 2007,
respectively. Bull 2 and Bear 2 are defined as periods of three consecutive weekly increases or Table I.
decreases. Neither a Bull 2 nor a Bear 2 period is terminated until a three consecutive week rise or fall in Summary of
the opposite direction occurs recommendations

where Rmt is the daily return on a market index comprised of all stocks traded on the
NYSE, AMEX, and NASDAQ, SMBt is the average return on three small
portfolios minus the average return on three large portfolios, and HMLt is the
average return on the two value portfolios minus the average return on the two growth
portfolios. The parameter estimates a^ j , b^ j , s^j , and h^ j , are obtained using ordinary least
squares regression.
Prior studies suggest that Cramer recommends stocks with momentum effects
(see Bolster et al., 2012; Lim and Rosario, 2010). We control for momentum by using
the four-factor model to estimate expected returns. This model extends the three-factor
model above by including Carhart’s (1997) momentum factor and estimates
 IJMF abnormal return as:
12,1 h i
Ajt ¼ Rjt  a^ j þ b^ j Rmt þ s^j SM Bt þ h^ j H M Lt þ u^ j U M Dt

where UMDt is the average return on two high prior return portfolios minus the
average return on two low prior return portfolios.
60 Evidence suggests that stock returns are not normally distributed, and that skewness
in stock returns increases as the event horizon increases (see Cowan, 1992; Cowan and
Sergeant, 2001). We employ several checks for robustness due to the potential non-
normality of the prediction errors. First, we adjust for skewness using the transformed
normal test statistic (T1) suggested by Hall (1992). This skewness-adjusted test statistic
is used by Chou et al. (2010) in their study of earnings management preceding private
equity placements. We also control for asymmetry in the prediction errors by applying
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Corrado’s (1989) rank test. Finally, we control for volatility in the stock returns using the
absolute abnormal returns (AAR) and cumulative absolute abnormal returns (CAAR) as
used by Gomes et al. (2007) and Bailey et al. (2006) among others.

5. Results
We use both a three-factor Fama and French (1993) model and a four-factor model that
incorporates Carhart’s (1997) momentum factor to estimate expected returns.
The results are qualitatively similar, so we report the four-factor model results
below. Furthermore, the rank test (Corrado, 1989) and the transformed normal test
statistic also produce similar results, so we report the T1 statistics below.

5.1 Daily abnormal returns

Table II reports daily abnormal returns of the full sample of buy and sell
recommendations over the days before and after the event without controlling for bull
and bear markets using the four-factor model to estimate expected returns. We find
positive 0.52 percent abnormal returns on the event date for buy recommendations, and
that is statistically significant at the 0.1 percent level. We also find an average
abnormal return of 1 percent on the day after buy recommendations are issued, which
is statistically significant at the 0.1 percent level. We find some evidence of negative
abnormal return on day + 4 after the event, suggesting possible overreaction on the
part of investors.
The positive and statistically significant abnormal returns in the days preceding the
buy recommendation suggest that Cramer does indeed recommend stocks with positive
momentum, consistent with Bolster et al. (2012) and Lim and Rosario (2010). However,
given that we are controlling for momentum using the Carhart (1997) momentum
factor, the returns following the event suggest that investors may be exhibiting herding
and driving stock returns higher on the day following a buy recommendation.
Abnormal returns surrounding sell recommendations exhibit a different pattern. We
find no evidence of abnormal returns in the days leading up to a sell recommendation
nor do we find evidence of abnormal returns on the event date itself. This suggests that
while Cramer may issue buy recommendations on stocks that experience positive
momentum, he does not issue sell recommendations on stocks that experience negative
momentum. On days + 1 and + 2 following a sell recommendation, we find
negative abnormal returns of − 0.27 and − 0.28 percent, respectively, and these are
statistically significant at the 5 and 1 percent levels, respectively. As with the buy
 AR (−2) AR (−1) AR (0) AR (+1) AR (+2) AR (+3) AR (+4) AR (+5)
Impact of
Mad Money
Buy sample 0.12 0.32 0.52 1.00 0.00 0.01 −0.18 −0.08
(n ¼ 890) (1.344)* (3.423)**** (5.453)**** (9.257)**** (−0.007) (0.138) (−1.870)** (−0.910)
47%:53% 51%:49% 50%:50% 62%:38% 48%:52% 49%:51% 42%:58% 45%:55%
Sell sample 0.14 0.21 −0.01 −0.27 −0.28 0.05 −0.2 0.13
(n ¼ 668) (0.786) (1.219) (−0.069) (−2.010)** (−2.449)*** (0.438) (−1.908)** (1.161)
46%:54% 49%:51% 45%:55% 44%:56% 45%:55% 47%:53% 45%:55% 50%:50%
61
Notes: Average abnormal returns estimated using the Fama French (1993) three-factor model and including the
Carhart (1997) momentum. Abnormal returns (AR) presented with skewness-adjusted transformed normal (Hall,
1992) T1 statistic in parentheses. Proportion positive: proportion negative shown in italics. n is the number of Table II.
useable observations at day 0 where time is measured in trading days. *,**,***,****Significant at the 10, 5, 1, and 0.1 Average abnormal
percent levels, respectively returns
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recommendations, these results also indicate herding in response to Cramer’s

sell recommendations. We find some continued negative abnormal return on day + 4
suggesting that prices underreact to the initial information and drift downwards.
Table III reports daily abnormal returns for buy recommendations in bull vs bear
markets. Bull 1 and Bear 1 indicate a bull/bear split on October 9, 2007, whereas Bull 2
and Bear 2 identifies bulls and bears using a three-up week and three-down week
method. We find positive abnormal returns of 0.41 percent on the event date in
both definitions of bull markets, on average, followed by 0.97 and 0.84 percent
positive and significant abnormal returns on the day following the buy

AR (−2) AR (−1) AR (0) AR (+1) AR (+2) AR (+3) AR (+4) AR (+5)

Panel A: bull market

Bull 1 0.12 0.3 0.41 0.97 −0.07 −0.03 −0.21 −0.04
(n ¼ 807) (1.303)* (3.379)**** (4.485)**** (10.945)**** (−1.031) (−0.361) (−2.934)*** (−0.471)
47%:53% 51%:49% 50%:50% 62%:38% 48%:52% 49%:51% 42%:58% 46%:54%
Bull 2 0.02 0.29 0.41 0.84 −0.11 −0.01 −0.18 −0.01
(n ¼ 707) (0.251) (3.162)**** (4.115)**** (5.937)**** (−1.418)* (−0.140) (−2.563)*** (−0.152)
45%:55% 50%:50% 50%:50% 60%:40% 48%:52% 49%:51% 42%:58% 46%:54%

Panel B: bear market

Bear 1 0.16 0.7 1.56 1.22 0.72 0.3 0.08 −0.4
(n ¼ 85) (0.391) (1.301)* (3.065)*** (1.424)* (1.301)* (0.687) (0.140) (−0.824)
43%:57% 57%:43% 53%:47% 56%:44% 49%:51% 57%:43% 43%:57% 42%:58%
Bear 2 0.5 0.44 0.94 1.59 0.41 0.09 −0.17 −0.34
(n ¼ 183) (2.065)** (1.546)* (3.627)**** (6.453)**** (1.498)* (0.385) (−0.494) (−1.339)*
53%:47% 54%:46% 52%:48% 67%:33% 48%:52% 51%:49% 40%:60% 41%:59%
Notes: Average abnormal returns estimated using the Fama French (1993) three-factor model and
including the Carhart (1997) momentum. Abnormal returns (AR) presented with skewness-adjusted Table III.
transformed normal (Hall, 1992) T1 statistic in parentheses. Proportion positive: proportion negative Average abnormal
shown in italics. Panel A presents ARs for bull market buy recommendations and the respective returns of buy
subcategories. Panel B shows the ARs for bear market buy recommendations and the recommendations in
respective subcategories. n is the number of useable observations at day 0 where time is measured in bull and
trading days. *,**,***Significant at 10, 5, and 1 percent levels, respectively bear markets
 IJMF recommendations. The abnormal returns reverse sign starting on the second day
12,1 after the buy recommendation and are negative and statistically significant on day
4 after the event.
Panel B shows the same pattern in both definitions of bear markets, but the abnormal
returns are much greater than reported in bull markets with 1.56 and 0.94 percent
positive abnormal returns on the day that Cramer issues a buy recommendation, on
62 average. The magnitude is two to four times the magnitude in bull markets, and this is
after controlling for momentum and for common risk factors. The greater degree of
positive abnormal returns in bear markets compared to bull markets suggests a buy
recommendation in a bear market has a larger initial impact than a buy recommendation
in a bull market. It seems investors in bull markets have a lesser propensity to act on buy
recommendations – perhaps because they are satisfied with the current level of gains and
do not want to risk more funds that may incur losses. In bear markets, a buy
recommendation has a greater impact, possibly due to a belief that buying on positive
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information in a down market has a greater chance of being successful than buying on
positive information in an up market. This evidence suggests contrarian behavior in
which investors respond positively to good news in bad times – perhaps, in an effort to
stay the course and at least break even. This behavior may also support the disposition
effect proposed by Shefrin and Statman (1985); losers tend to hold on to losses in hopes of
recouping them. Thus, positive information in bad times could further persuade market
participants realize gains, while also persuading non-shareholders to buy in as well. The
end result is an initial positive abnormal return in response to buy recommendations in a
bear market which surpasses the magnitude of the negative abnormal return caused by
sell recommendations in a bull market.
Table IV reports daily abnormal returns in response to sell recommendations in bull
and bear markets. The results are mixed, with negative and statistically significant
abnormal returns in the days following a sell announcement. This pattern holds for
both definitions of bull market, but only holds for the first, and most broad, definition of
a bear market. This lends preliminary support to the prospect theory of Kahneman and
Tversky (1979) and expanded by Shefrin and Statman (1985) who describe the
tendency to sell winners too soon and hang on to losers too long as the disposition
effect. It is possible that sell recommendations in bull markets gave market participants
justification to dump winners in order to lock in gains.
Buy recommendations in bear markets and sell recommendations in bull market
suggest further evidence of the disposition effect. These two subsamples provided our
most substantial indications of abnormal returns associated with buy and sell
recommendations. Positive abnormal returns associated with buy recommendations in
bear markets exceed the magnitude of negative abnormal returns associated with sell
recommendations in bull markets. The buy in a bear market impact is two or more
times as great as the sell in a bull market impact. This behavior is consistent with
prospect theory and supports the disposition effect of Shefrin and Statman (1985).
Kahneman and Tversky (1979) suggest that investors feel the need to recover their
losses twice as much as the need to lock in gains. Buy and sell recommendations appear
to be triggers which cause investors to engage in loss aversion behavior in bear and
bull markets, respectively.
The level of utility for an equivalent gain is half the magnitude of the drop in utility
for an equivalent loss. In other words, losses are felt twice as much as gains, or in our
case, bear periods are felt twice as negatively as bulls are felt positively. An illustration
is of prospect theory’s asymmetric value function is presented Figure 2.
 AR (−2) AR (−1) AR (0) AR (+1) AR (+2) AR (+3) AR (+4) AR (+5)
Impact of
Mad Money
Panel A: bull market
Bull 1 0.1 0.09 0.05 −0.19 −0.18 0.06 −0.19 0.11
(n ¼ 566) (0.692) (0.558) (0.304) (−1.386)* (−1.605)* (0.480) (−2.051)** (0.979)
45%:55% 48%:52% 45%:55% 45%:55% 45%:55% 46%:54% 45%:55% 50%:50%
Bull 2 0.18 0.3 0.07 −0.22 −0.28 −0.01 −0.27 0.04
(n ¼ 508) (0.884) (1.546)* (0.359) (−1.552)* (−2.517)*** (−0.044) (−2.624)*** (0.358) 63
45%:55% 49%:51% 45%:55% 43%:57% 45%:55% 46%:54% 44%:56% 50%:50%
Panel B: bear market
Bear 1 0.35 0.88 −0.35 −0.73 −0.85 0.03 −0.26 0.28
(n ¼ 102) (0.419) (1.273) (−0.732) (−1.565)* (−2.008)** (0.063) (−0.551) (0.624)
47%:53% 51%:49% 48%:52% 42%:58% 45%:55% 49%:51% 44%:56% 51%:49%
Bear 2 0 −0.07 −0.26 −0.44 −0.28 0.25 0.01 0.44
(n ¼ 157) (0.000) (−0.196) (−0.882) (−1.273) (−0.835) (0.827) (0.044) (1.478)*
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48%:52% 47%:53% 46%:54% 47%:53% 47%:53% 50%:50% 48%:52% 50%:50%

Notes: Average abnormal returns estimated using the Fama French (1993) three-factor model and
including the Carhart (1997) momentum. Abnormal returns (AR) presented with skewness-adjusted Table IV.
transformed normal (Hall, 1992) T1 statistic in parentheses. Proportion positive: proportion negative Average abnormal
shown in italics. Panel A presents ARs for bull market buy recommendations and the returns of sell
respective subcategories. Panel B shows the ARs for bear market buy recommendations and recommendations
the respective subcategories. n is the number of useable observations at day 0 where time is measured in bull and
in trading days. *,**,***Significant at 10, 5 and 1 percent levels, respectively bear markets

VALUE

LOSSES GAINS

Figure 2.
Hypothetical
value function
Source: Kahneman and Tversky (1979)

It is reasonable to find that buy recommendations in bull markets result in double the
positive abnormal return than the negative abnormal return of sell recommendations in
bull markets due to a bias which causes an investor to hold on to losers longer (using
buy recommendations to confirm one’s stubbornness) and sell winners faster (using sell
recommendations to rationalize a quick gain).

5.2 Cumulative abnormal returns (CAR)

Table V reports CAR for the total buy and sell recommendation samples without
controlling for bull and bear markets. The results show that buy recommendations
 IJMF CAR (−5,0) CAR (0,+2) CAR (0,+5) CAR (+1,+1) CAR (+1,+2) CAR (+1,+10) CAR (0,+20)
12,1
Buy sample 1.28 1.45 1.21 1.00 0.94 0.15 −0.18
(n ¼ 902) (6.415)**** (8.713)**** (5.320)**** (9.257)**** (6.614)**** (0.587) (−0.436)
51%:49% 57%:43% 54%:46% 62%:38% 56%:44% 48%:52% 48%:52%
Sell sample 0.68 −0.55 −0.56 −0.27 −0.54 −1.42 −1.99
(n ¼ 678) (1.888)** (−2.308)** (−1.717)** (−2.010)** (−3.095)**** (−3.578)**** (−3.138)****
64 50%:50% 46%:54% 45%:55% 44%:56% 44%:56% 44%:56% 42%:58%
Table V. Notes: Cumulative average abnormal returns (CAR) estimated using the Fama French (1993) three-
Cumulative factor model and including the Carhart (1997) momentum factor. CARs presented with skewness-
abnormal returns adjusted transformed normal (Hall, 1992) T1 statistic in parentheses. Proportion positive: proportion
(buy sample and negative shown in italics. n is the number of useable observations at window (0,+ 2) where time is
sell sample) measured in trading days. **,****Significant at 5 and 0.1 percent levels, respectively
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follow periods of large positive CARs, suggesting that Cramer tends to recommend
buying shares that are exhibiting positive momentum, but that the same does not
seem to hold for his sell recommendations. Moreover, the gains to shareholders
following buy recommendations is larger than the losses following sell
recommendations, suggesting further evidence of a behavioral bias to sell winners
and hold losers rather than realize losses.
Table VI reports CAR in response to buy recommendations in bull and bear
markets. The results show that a buy recommendation in a bear market has a greater
impact than a buy recommendation in a bull market, confirming our earlier findings in
Table III. Table VII presents the CARs in the days surrounding sell recommendations,
and shows that the market response in bear markets is greater than the market
response in bull markets.

CAR (−5,0) CAR (0,+2) CAR (0,+5) CAR (+1,+1) CAR (+1,+2) CAR (+1,+10) CAR (0,+20)

Panel A: bull market

Bull 1 1.04 1.24 0.97 0.97 0.83 0.03 −0.41
(n ¼ 817) (5.238)**** (9.043)**** (5.070)**** (10.945)**** (7.629)**** (0.122) (−1.083)
50%:50% 57%:43% 54%:46% 62%:38% 56%:44% 48%:52% 47%:53%
Bull 2 1.07 1.08 0.88 0.84 0.68 −0.06 −0.6
(n ¼ 717) (5.010)**** (5.871)**** (3.680)**** (5.937)**** (4.203)**** (−0.211) (−1.424)*
50%:50% 56%:44% 54%:46% 60%:40% 55%:45% 47%:53% 47%:53%

Panel B: bear market

Bear 1 3.78 3.45 3.42 1.22 1.92 1.37 2.01
(n ¼ 87) (4.200)**** (2.642)*** (2.170)** (1.424)* (1.741)** (0.934) (0.836)
61%:39% 55%:45% 52%:48% 56%:44% 53%:47% 51%:49% 55%:45%
Bear 2 2.1 2.87 2.47 1.59 1.95 0.97 1.43
(n ¼ 185) (4.085)**** (5.958)**** (3.991)**** (6.453)**** (5.428)**** (1.544)* (1.281)
55%:45% 61%:39% 53%:47% 67%:33% 58%:42% 52%:48% 52%:48%
Table VI. Notes: Cumulative average abnormal returns (CAR) estimated using the Fama French (1993) three-factor model and
Cumulative including the Carhart (1997) momentum factor. CARs presented with skewness-adjusted transformed normal
abnormal returns (Hall, 1992) T1 statistic in parentheses. Proportion positive: proportion negative shown in italics. n is the number of
of buy useable observations at window (0,+2) where time is measured in trading days. Panel A presents CARs for bull
recommendations market buy recommendations and the respective subcategories. Panel B shows the CARs for bear market buy
in bull and bear recommendations and the respective subcategories. *,**,***,****Significant at the 10, 5, 1, and 0.1 percent
markets levels, respectively
 CAR (−5,0) CAR (0,+2) CAR (0,+5) CAR (+1,+1) CAR (+1,+2) CAR (+1,+10) CAR (0,+20)
Impact of
Mad Money
Panel A: bull market
Bull 1 0.65 −0.31 −0.33 −0.19 −0.35 −0.8 −1.22
(n ¼ 575) (1.924)** (−1.260) (−1.011) (−1.386)* (−2.060)** (−2.121)** (−1.925)**
49%:51% 46%:54% 45%:55% 45%:55% 45%:55% 46%:54% 43%:57%
Bull 2 1.05 −0.42 −0.64 −0.22 −0.49 −1.48 −1.8
(n ¼ 520) (2.694)*** (−1.666)** (−1.867)** (−1.552)* (−2.948)*** (−3.676)**** (−2.525)***
65
50%:50% 46%:54% 44%:56% 43%:57% 44%:56% 43%:57% 42%:58%

Panel B: bear market

Bear 1 0.86 −1.9 −1.85 −0.73 −1.56 −4.86 −6.27
(n ¼ 103) (0.602) (−2.641)*** (−1.629)* (−1.565)* (−2.548)*** (−3.181)**** (−2.978)***
53%:47% 46%:54% 41%:59% 42%:58% 39%:61% 35%:65% 34%:66%
Bear 2 −0.54 −0.97 −0.28 −0.44 −0.71 −1.19 −2.6
(n ¼ 158) (−0.736) (−1.644)* (−0.344) (−1.273) (−1.374)* (−1.122) (−1.897)**
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49%:51% 44%:56% 46%:54% 47%:53% 45%:55% 49%:51% 41%:59%

Notes: Cumulative average abnormal returns (CAR) estimated using the Fama French (1993) three-factor model and Table VII.
including the Carhart (1997) momentum factor. CARs presented with skewness-adjusted transformed normal Cumulative
(Hall, 1992) T1 statistic in parentheses. Proportion positive: proportion negative shown in italics. n is the number of abnormal returns
useable observations at window (0,+2) where time is measured in trading days. Panel A presents CARs for bull of sell
market buy recommendations and the respective subcategories. Panel B shows the CARs for bear market buy recommendations
recommendations and the respective subcategories. *,**,***,****Significant at 10, 5, 1, and 0.1 percent in bull and bear
levels, respectively markets

5.3 Tests for robustness

As the results may be driven by return volatility, we follow Gomes et al. (2007) and
Bailey et al. (2006) in using AAR and CAAR to estimate market reaction following
buy and sell recommendations. The results are presented in Tables VIII through XIII,
and demonstrate that abnormal returns surrounding Cramer’s recommendations are
persistent in bull and in bear markets. Table VIII shows the full sample AARs are
close to 2 percent, on average, on the event date and remain statistically significant on
all days surrounding the announcement dates. Table IX confirms the finding that buy
recommendations in bear markets are met with greater price impact than
buy recommendations in bull markets, while Table X presents a similar picture for
sell recommendations.

AR (−2) AR (−1) AR (0) AR (+1) AR (+2) AR (+3) AR (+4) AR (+5)

Full sample 1.84 1.95 1.99 2.13 1.74 1.61 1.59 1.62
(n ¼ 1,558) (107.630)**** (75.430)**** (64.530)**** (76.636)**** (94.876)**** (86.405)**** (109.317)**** (69.774)****
Buy sample 1.67 1.74 1.83 2.13 1.58 1.43 1.49 1.47
(n ¼ 890) (65.065)**** (60.160)**** (46.085)**** (55.204)**** (93.033)**** (58.912)**** (112.030)**** (54.621)****
Sell sample 2.05 2.22 2.19 2.12 1.96 1.85 1.74 1.81
(n ¼ 668) (46.009)**** (41.550)**** (44.641)**** (43.271)**** (46.030)**** (49.635)**** (44.414)**** (45.039)****
Notes: Average absolute abnormal returns estimated using the Fama French (1993) three-factor model and including the Carhart
(1997) momentum factor. Abnormal returns (AR) presented with skewness-adjusted transformed normal (Hall, 1992) T1 statistic in Table VIII.
parentheses. n is the number of useable observations at day 0 where time is measured in trading days. ****Significant at 0.1 percent Average absolute
level abnormal returns
 IJMF AR (−2) AR (−1) AR (0) AR (+1) AR (+2) AR (+3) AR (+4) AR (+5)
12,1
Panel A: bull market
Bull 1 1.56 1.59 1.68 1.9 1.41 1.33 1.38 1.36
(n ¼ 807) (68.308)**** (65.450)**** (46.996)**** (44.296)**** (54.945)**** (52.007)**** (53.902)**** (53.895)****
Bull 2 1.52 1.59 1.71 1.93 1.39 1.31 1.31 1.39
(n ¼ 707) (66.244)**** (63.086)**** (43.318)**** (41.948)**** (51.036)**** (47.736)**** (51.128)**** (49.294)****
66
Panel B: bear market
Bear 1 2.62 3.21 3.19 4.18 3.14 2.51 2.6 2.58
(n ¼ 85) (14.444)**** (16.467)**** (10.425)**** (10.666)**** (13.622)**** (17.387)**** (13.709)**** (17.178)****
Table IX. Bear 2 2.23 2.31 2.29 2.9 2.31 1.94 2.21 1.81
Average absolute (n ¼ 183) (20.451)**** (21.964)**** (16.962)**** (25.452)**** (27.468)**** (23.614)**** (28.719)**** (23.889)****
abnormal returns Notes: Average absolute abnormal returns estimated using the Fama French (1993) three-factor model and including the
of buy Carhart (1997) momentum factor. Abnormal returns (AR) presented with skewness-adjusted transformed normal (Hall, 1992)
recommendations T1 statistic in parentheses. Panel A presents ARs for bull market buy recommendations and the respective subcategories.
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in bull and bear Panel B shows the ARs for bear market buy recommendations and the respective subcategories. n is the number of useable
markets observations at 0 where time is measured in trading days. ****Significant at 0.1 percent level

AR (−2) AR (−1) AR (0) AR (+1) AR (+2) AR (+3) AR (+4) AR (+5)

Panel A: bull market

Bull 1 1.76 1.88 1.99 1.9 1.73 1.67 1.49 1.61
(n ¼ 566) (50.853)**** (41.147)**** (39.904)**** (41.039)**** (41.979)**** (48.150)**** (44.021)**** (48.838)****
Bull 2 1.94 2.08 2.1 1.9 1.72 1.67 1.56 1.66
(n ¼ 508) (32.527)**** (31.581)**** (34.807)**** (41.017)**** (42.924)**** (45.624)**** (44.813)**** (43.238)****

Panel B: bear market

Bear 1 3.7 4.1 3.3 3.34 3.22 2.88 3.09 2.97
(n ¼ 102) (11.526)**** (15.259)**** (16.441)**** (19.080)**** (20.261)**** (20.303)**** (15.500)**** (14.867)****
Bear 2 2.44 2.67 2.5 2.81 2.76 2.46 2.3 2.32
Table X. (n ¼ 157) (20.855)**** (18.974)**** (21.094)**** (20.021)**** (20.861)**** (23.965)**** (18.135)**** (18.588)****
Average abnormal Notes: Average absolute abnormal returns estimated using the Fama French (1993) three-factor model and including the
returns of sell Carhart (1997) momentum. Abnormal returns (AR) presented with skewness-adjusted transformed normal (Hall, 1992) T1
recommendations statistic in parentheses. Panel A presents ARs for bull market buy recommendations and the respective subcategories. Panel B
in bull and bear shows the ARs for bear market buy recommendations and the respective subcategories. n is the number of useable obser-
markets vations at 0 where time is measured in trading days. ****Significant at 0.1 percent level

6. Conclusions
This study investigates behavioral finance implications associated with the impact of
Mad Money recommendations on share prices in bull and bear markets. Consistent
with prior studies, our findings suggest that Cramer recommends stocks that exhibit
positive momentum. After controlling for momentum using the Carhart (1997)
momentum factor, abnormal returns following Cramer’s announcements suggest that
investors may be exhibiting herding and driving stock returns higher on the day
following a buy recommendation. We find no evidence that Cramer issues sell
recommendations on stocks that experience negative momentum. However, we find
negative abnormal returns in the days following sell recommendations, on average,
indicating investor herding in response to Cramer’s sell recommendations.
Furthermore, we find some continued negative abnormal return suggesting that
prices underreact to the initial information and drift downwards.
 Impact of
CAR (−5,0) CAR (0,+2) CAR (0,+5) CAR (+1,+1) CAR (+1,+2) CAR (+1,+10) CAR (0,+20) Mad Money
Full sample 4.91 3.6 4.9 2.13 2.8 5.86 8.91
(n ¼ 1,580) (91.722)**** (74.338)**** (75.559)**** (76.636)**** (76.937)**** (70.462)**** (87.937)****
Buy sample 4.32 3.53 4.48 2.13 2.67 5.05 7.96
(n ¼ 902) (60.353)**** (55.723)**** (56.286)**** (55.204)**** (56.345)**** (60.632)**** (65.890)****
Sell sample 5.71 3.7 5.45 2.12 2.97 6.93 10.17
67
(n ¼ 678) (59.811)**** (46.255)**** (49.554)**** (43.271)**** (46.545)**** (43.297)**** (59.373)**** Table XI.
Notes: Cumulative average absolute abnormal returns (CAR) estimated using the Fama French (1993) three-factor model Cumulative absolute
and including the Carhart (1997) momentum factor. CARs presented with skewness-adjusted transformed normal (Hall, 1992) abnormal returns
T1 statistic in parentheses. n is the number of useable observations at window (0,+2) where time is measured in trading days. (buy sample and sell
****Significant at 0.1 percent level sample)
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CAR (−5,0) CAR (0,+2) CAR (0,+5) CAR (+1,+1) CAR (+1,+2) CAR (+1,+10) CAR (0,+20)

Panel A: bull market

Bull 1 4.01 3.11 3.97 1.9 2.36 4.7 7.27
(n ¼ 817) (57.528)**** (58.492)**** (58.198)**** (44.296)**** (55.012)**** (54.003)**** (55.606)****
Bull 2 4.01 3.13 4.07 1.93 2.39 4.79 7.41
(n ¼ 717) (52.344)**** (54.339)**** (54.650)**** (41.948)**** (56.754)**** (56.570)**** (52.647)****

Panel B: bear market

Bear 1 7.38 7.47 9.26 4.18 5.67 8.29 14.43
(n ¼ 87) (18.422)**** (10.351)**** (11.801)**** (10.666)**** (10.755)**** (15.755)**** (16.512)****
Bear 2 5.52 5.07 6.09 2.9 3.78 6.06 10.1
Table XII.
(n ¼ 185) (28.830)**** (18.376)**** (20.587)**** (25.452)**** (20.438)**** (25.290)**** (30.075)**** Cumulative average
abnormal returns
Notes: Cumulative average absolute abnormal returns (CAR) estimated using the Fama French (1993) three-factor model
of buy
and including the Carhart (1997) momentum factor. CARs presented with skewness-adjusted transformed normal (Hall, 1992)
recommendations in
T1 statistic in parentheses. n is the number of useable observations at window (0,+2) where time is measured in trading days.
bull and bear
****Significant at 0.1 percent level
markets

CAR (−5,0) CAR (0,+2) CAR (0,+5) CAR (+1,+1) CAR (+1,+2) CAR (+1,+10) CAR (0,+20)

Panel A: bull market

Bull 1 4.96 3.35 4.91 1.9 2.61 6.04 9.13
(n ¼ 575) (64.513)**** (44.838)**** (49.322)**** (41.039)**** (42.963)**** (41.913)**** (64.867)****
Bull 2 5.46 3.28 4.97 1.9 2.55 6.26 9.6
(n ¼ 520) (45.658)**** (43.615)**** (47.819)**** (41.017)**** (45.694)**** (40.074)**** (58.080)****

Panel B: bear market

Bear 1 9.88 5.63 8.46 3.34 4.94 11.87 16.02
(n ¼ 103) (20.202)**** (18.546)**** (18.817)**** (19.080)**** (22.114)**** (16.717)**** (15.824)**** Table XIII.
Bear 2 6.52 5.06 7.03 2.81 4.33 9.11 12.07 Cumulative average
(n ¼ 158) (21.404)**** (21.581)**** (21.345)**** (20.021)**** (20.721)**** (19.912)**** (19.110)**** abnormal returns
Notes: Cumulative average absolute abnormal returns (CAR) estimated using the Fama French (1993) three-factor model of sell
and including the Carhart (1997) momentum factor. CARs presented with skewness-adjusted transformed normal (Hall, 1992) recommendations in
T1 statistic in parentheses. n is the number of useable observations at window (0,+2) where time is measured in trading days. bull and bear
****Significant at 0.1 percent level markets
 IJMF Our results following buy recommendations in bear markets and sell recommendations
12,1 in bull market suggest evidence of the disposition effect. We find that the price impact of
a buy recommendation in a bear market is two or more times as great as the price impact
of a sell recommendation in a bull market. This behavior is consistent with prospect
theory and supports the disposition effect of Shefrin and Statman (1985). Buy and sell
recommendations appear to be triggers which cause investors to engage in loss aversion
68 behavior in bear and bull markets, respectively.

Notes
1. We thank Dr Engelberg of the University of San Diego for sharing this data set.
2. YourMoneyWatch.com was taken offline in 2009. The site supplies only buy
recommendations.
Downloaded by La Trobe University At 06:03 05 February 2016 (PT)

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Corresponding author
Dr Nivine Richie can be contacted at: richien@uncw.edu

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