Company Name Influences Stock Performance
Easy to pronounce names perform better in stock markets
June 23, 2006
Researchers have found that companies with easily pronounced names and stock ticker symbols perform better in stock markets in the days following the initial public offering (IPO). The NSF-funded study shows that in both the New York Stock Exchange and the American Exchange, stocks with fluent names initially appreciated more in value than did those with more complex names.
The research highlights the important role that psychological factors play in stock market behavior.
Princeton University assistant professor of psychology Daniel Oppenheimer, and graduate student Adam Alter, examined the relationship between ease of pronunciation and stock performance. The initial, accidental discovery of a connection between the two originated when a group of students continually predicted easily pronounceable stocks would perform best. Applying the discovery to the "real world" in two large U.S. stock markets, Oppenheimer and Alter found the same results: those stocks with more fluent names or symbols, initially performed better than their more difficult-to-pronounce counterparts did.
Two follow-up studies showed that the effects of name fluency are strongest shortly after the company's IPO. The researchers also controlled for company size, country of origin and influence of industry, among other factors. Results remained the same.
The research was published in the June 13, 2006, issue of Proceedings of the National Academy of Sciences.
For more information, see the full university press release at the link below.
-- Michele Siegle Coghill
, New Jersey
Decision, Risk and Management Sciences
#0518811 Fluency as a Substitute for Validity in Cue Selection
Princeton University press release: http://www.princeton.edu/main/news/archive/S14/90/01C38/index.xml?section=newsreleases