Jim Cramer is Harmless

Posted on August 25th, 2009 by admin in How to Invest

Paul Bolster and Emery Trahan, professors of finance at Northeastern University, recently rigorously analyzed the investing performance CNBC star Jim Cramer. Cramer is a well known entertainer and market maven who seemingly has a real time database in his head of every traded US stock. He frequently recommends buys and sells for a variety of stocks. He is very rich and famous. But do his recommendations pay off? If you followed him, would you have made money for the risk level of his recommendations?

Here’s the answer, in beautiful brevity:

Professor Bolster stated his overall conclusion: “He has an alpha of 0; he could do worse. He’s harmless.”

This means you would have gained nothing and lost nothing for the risk level of Cramer’s recommendations over the time horizon analyzed (July 2005 to the end of 2007). For details, see the full results described here:

Paul J. Bolster and Emery A. Trahan, “Investing in Mad Money: Price and Style Effects,” Financial Services Review, Vol.18 (2009), pp. 69–86.

You also can read a summary here.

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