Stock Performance Tied To Ease Of Pronouncing Company’s Name

Status: Unusual Research
There's nothing hoaxy about this story. It's just another example of how non-rational people can be... especially investors in the stock market. Two Princeton researchers, Adam Alter and Danny Oppenheimer, have discovered that the ease with which a company's name and its ticker symbol can be pronounced has a strong short-term effect on the performance of its stock. In other words, "a stock with the symbol BAL should outperform one with the symbol BDL in the first few days of trading."
"We looked at intervals of a day, a week, six months and a year after IPO," Alter said. "The effect was strongest shortly after IPO. For example, if you started with $1,000 and invested it in companies with the 10 most fluent names, you would earn $333 more than you would have had you invested in the 10 with the least fluent." Alter said the pair of scientists had been careful to address the possibility that other factors were at play in the study. "We thought it was possible that larger companies might both adopt more fluent names and attract greater investment than smaller companies," he said. "But the effect held regardless of company size. We also showed that the effect held when we controlled for the influence of industry, country of origin and other factors."
In Hippo Eats Dwarf I noted a similar effect: that when investors think they've found the next big thing (be it railways, airlines, biotech, dot.coms, or nanotechnology) all stocks whose names seem to have something to do with those fields benefit, whether or not they actually do have something to do with those fields. Thus, in the recent nanotechnology crazy, Nanometrics (ticker symbol: NANO) shot up, even though it makes semiconductor tools and has nothing to do with nanotechnology.

Business/Finance Psychology

Posted on Fri Jun 02, 2006


A pattern!
Posted by Egret Narcosa  on  Fri Jun 02, 2006  at  10:31 AM
Sort of makes sense, in a weird way...
Posted by Owen  on  Fri Jun 02, 2006  at  01:52 PM
Well, I suppose names that are easier to pronounce are also easier to remember, and nobody's going to buy a stock if they can't remember it.
Posted by Big Gary  on  Fri Jun 02, 2006  at  04:47 PM
Or...revelations.. if they're going to spend hard earned dollars investing, perhaps they could WRITE DOWN the company names and/or symbols. That would eliminate trying to "remember" it. ROTFLMFAO. Rookies.
Posted by Dilbert  on  Sun Jun 04, 2006  at  11:25 PM
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