Media Effect Makes Market Impact

Revised Sunday, Feb. 12, 5:42 p.m.

I have an off fascination with CNBC's Jim Cramer. If you have not watched the show, Mad Money, the man is a lunatic. He rants and raves like someone who downed an entire truckload of Red Bull, and he has this big control board full of red buttons that trigger sound effects. Although it seems as if he knows which sound effect he is triggering, I can never be sure due to the frenetic insanity. Yet somehow I find it fascinating.

The problem is, my wife hates the show. Thus the routine is that while channel surfing late at night, I invariably stop on Cramer -- just to watch the ADHD in motion -- and she then starts various threats on my life until I change the channel.

The other day I was flipping through, and during my short stay on CNBC, I heard various callers congratulate Cramer for his Harvard show from the day before. Saying "booyah" is an important part of the show, and there were many Harvard "booyahs" to Jim. I found this boring and moved on. The next night, I ran across a re-run of the Harvard show. My curiosity piqued and the resident protestor asleep, I watched it for a bit.

It seems Jim went to Harvard, and he was back there. There was a crazy crowd, and Jim was urging them to begin investing early in life. Along those lines, he was pushing stocks that were inexpensive and he thought would make money. The only one I remember (see a recap of the show for the others) was Bookham. I thought it was clever because it also had the college-like word "Book" in the name. At the time of the original show, the stock was in the $6 to $7 range, and Jim once mentioned "30 percent," which led me to believe he thought it could increase in value by that amount in the short range. It seems this company does something with optics, and they have some other competitive advantage that I did not care about since investments are not my thing.

However, the cognitive processing and effects of media are my thing. So, not surprisingly, a few days later, I began to wonder what effect Jim Cramer had on the market. I had to search for a recap of the show since my memory trace consisted of "book something." Sure enough, Jim has a pretty substantial media effect.



From what I can retrace, the original Harvard show aired on February 1, 2006. That was a Wednesday, and the stock (ticker symbol BKHM) closed at $6.96. The next day, Feb. 2, 2006, MSNBC reports the stock, "BKHM opened significantly up or down" and that same day "Hit a new 52-week high."

From what I can tell, the average daily volume for trading that stock is about 1.3 million shares. However, Cramer unleashed a torrent of trading. The day after it was mentioned on a fringe cable network, more than 25 million shares traded hands. (see bottom chart above). This was good news for brokers. For investors, the immediate price hike was temporary, as the next day, MSNBC reports, "Price down sharply on unusually high volume."

However, the stock was still in the collective conscience -- perhaps due to reruns such as the one that I saw -- as the opening bell on Monday, Feb. 6, saw more action, "Price up sharply on unusually high volume." And the stock is still in the collective memory -- perhaps now in the elite investor -- as Thursday saw a report of, "Institutional holdings of BKHM increased significantly."

Unlike media violence studies that show small and arguable effects, this financial media effect is nearly instant and easily quantifiable. In this instance, a show that is not widely watched (in ratings terms) had a profound effect on the market. To the avid day trader, this type of media effect could mean millions.

In the meantime, I noticed that my online investment account had accumulated some dividends, and I had $182 earning some tiny amount of interest. So, when the market opens on Monday, count me among the new owners of Bookham Inc. Twenty-one shares. We'll see whether Cramer's 30% prediction come true after the bounce from his show.