Cramer vs. Pseudo-Cramer
by Patrick Burns.
Abstract: A recent Barron’s article examined the efficacy of stock recommendations on the television show Mad Money. Statistical analyses of stock recommendations are scrutinized here in detail, and a powerful analysis using random portfolios is suggested. Differences between simple returns and log returns are discussed, as is the usefulness of the statistical bootstrap. The cost to individuals of trading stocks can easily overwhelm even quite good recommendations.