DEFINITION of 'Cramer Bounce'

The sudden overnight appreciation of a stock's price after it has been recommended by Jim Cramer on his CNBC show, "Mad Money". This increase in price can be attributed to investors who buy stocks after seeing Cramer's recommendations.

BREAKING DOWN 'Cramer Bounce'

This effect is fairly significant in certain classes of stock. For example, one study entitled Is the Market Mad? Evidence from Mad Money released by Northwestern University in March of 2006 showed that for smaller stocks, the overnight increase can be more than 5%.

This abnormal increase lasts for only about 12 days, whereupon the stock's price retreats back to its pre-recommended price, assuming no other news has been released.

This is one instance in which it can be argued that irrational investors have a significant effect on a stock's price.

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