Cramer Bounce

What Is the Cramer Bounce?

The Cramer bounce alludes to the sudden overnight rise of a stock's price after it has been recommended by Jim Cramer on his long-running CNBC show, "Mad Money." This increase in price can be credited to investors who buy stocks in the wake of hearing Cramer's recommendations, subsequently the term "Cramer bounce." The increase is credited to Cramer's reputation as a stock-picking master, his convincing showy behaviors, and a sheep-following-the-group mentality.

Understanding the Cramer Bounce

Who Is Jim Cramer?

James Cramer is an American TV personality, former hedge fund manager, and bestselling creator. Cramer is the host of CNBC's "Mad Money" and a co-pioneer behind TheStreet, Inc. The cable TV program "Mad Money with Jim Cramer" first aired on CNBC in 2005.

Cramer established his own hedge fund, Cramer and Co. (later Cramer, Berkowitz and Co.), in 1987. The fund worked out of the offices of hedge fund pioneer Michael Steinhardt (Steinhardt, Fine, Berkowitz and Co.), and early investors included Eliot Spitzer, a Harvard schoolmate.

Jim Cramer has many fans, yet additionally numerous pundits. Pundits frequently point out that Cramer can be whimsical in his investment outlook since he appears to oftentimes flip-flop from a bullish to a bearish position, to mirror the market's current sentiment. He has had his fair share of disappointments. In 2008, for instance, he talked with Wachovia's CEO live on the air, really hyping up the company's stock preceding it dove.

Cramer's cruel personality and frank ways have prompted him having an incredible reputation. As a matter of fact, as the New York Times Magazine reports, he "pulls off a ton" since he likewise ends up making individuals, himself included, large chunk of change. His slogan on "Mad Money" is that he hasn't arrived to "make friends, however to make you money."

Cramer has been open about his personal life also. His collection of memoirs, "Confessions of a Street Addict," gave an inside take a gander at both the hedge fund culture as well as his life battles. While Cramer might have the option to give understanding into the market thanks to his long history on Wall Street and his financial foundation, his recommendation is limited for people who will have contrasting financial portfolios, risk tolerances, and investment needs.

A Cramer Bounce?

The Cramer bounce is fairly huge in certain classes of stock. For instance, one study, named "Is the Market Mad? Evidence from 'Mad Money,'" delivered by Northwestern University in March 2006, showed that for more modest stocks, the overnight increase can be over 5%.

This abnormal increase goes on for somewhere around 12 days, whereupon the stock's price withdraws back to its pre-recommended price, accepting no other news has been delivered. This is one case in which it tends to be contended that irrational investors fundamentally affect a stock's price.

Legitimacy of the Cramer Bounce

There are studies portraying the market's reaction to recommendations made on Cramer's show. Outstandingly, in January 2009, graduate understudies from the University of Pennsylvania distributed a study claiming that over the long haul, the average next-day increase for a stock that Cramer recommended was 3% for the whole study sample, and practically 7% for [smaller cap stocks](/little cap). They proved using electronic communication organizations (ECN) that most trades came in after 7 p.m. ET, when "Mad Money" concluded.

One more study conducted by Northwestern University, named "Is the Market Mad?: Evidence from 'Mad Money'" and distributed in 2006, showed that the average cumulative return on Cramer's recommendation was 5.19%, yet more important, practically every one of the increases were invalidated in 12 days or less.

Cramer recommends stocks with momentum, both positive and negative. His recommendations influence the price, with the impact switching rapidly, consistent with pricing pressure brought about by watchers' bouncing on Cramer's recommendations. Cramer's sell recommendations additionally influence prices, however the impact doesn't rapidly reverse.

Features

• Jim Cramer is a long-standing American TV personality who declares investing exhortation on stock tips.
• The Cramer bounce alludes to the increase in a stock's price after it has been referenced well on Jim Cramer's show, "Mad Money."
• Research has shown an average of a 3% increase in price due to the Cramer bounce, yet the effect is fleeting.