By Matthew Kassel
Can an interesting stock symbol move markets?
A study published in the Journal of Financial Markets finds that the “likability” and even the pronounceability of a ticker symbol are positively related to a stock’s value. In other words, if your stock can’t have the symbol IBM /zigman2/quotes/203856914/composite IBM -2.07% or AAPL, /zigman2/quotes/202934861/composite AAPL -1.51% at least pick a clever one.
The researchers asked undergraduate business students at the University of Central Florida to rate three-letter ticker symbols from 1,959 publicly traded companies based on how much they liked them and how easy they were to pronounce. The paper found that valuations of shares with symbols the students liked, including ACE, /zigman2/quotes/206753037/delayed PH:ACE 0.00% BRO /zigman2/quotes/204295825/composite BRO -0.54% and LUV, /zigman2/quotes/201071949/composite LUV -2.88% were about 1.3 percentage points higher than valuations of those with handles rated less favorably, like CFW, /zigman2/quotes/202132416/delayed CA:CFW -4.77% JWN /zigman2/quotes/203902116/composite JWN -2.23% and ZQK. Symbols were from a sample period from 1982 to 2011.
The difference isn’t negligible. If two otherwise identical companies each have $1 billion of assets, for instance, the one with the more likable ticker symbol could be valued by investors at $13 million more, according to the study’s logic.
What may account for the bump, the study says, is that a likable symbol is associated with greater liquidity, since investors also tend to trade stocks with more-likable symbols at a higher rate. Alternatively, the study suggests, a higher value could be the result of mispricing; investors might unconsciously assign a higher value to a symbol that is easier to pronounce. The study controlled for possible differences in valuations of samples taken in different years.
Xuejing Xing, a co-author of the study and an associate professor of finance at the University of Alabama in Huntsville, says ticker symbols convey little information about a company, which makes it easier to isolate their effect on stock prices from other variables such as future cash flows and risk. Ticker symbols, too, are usually only remotely related to their company names, he says, so judgment of a symbol likely isn’t influenced by knowledge of a company’s financial success, failure or any other mitigating factors that could affect perception.
Not so fast, says Russell Jame, an assistant professor of finance at the University of Kentucky. Yes, he says, the study’s findings are broadly consistent with his own research, showing companies with easy-to-pronounce names have higher value and liquidity. But stock names aren’t empty vessels, he says. Recognizable symbols like BUD /zigman2/quotes/209225053/composite BUD -3.97% and IBM were highly rated, he says, possibly because of their natural association with popular companies.
It’s also possible, says T. Clifton Green, a professor of finance at Emory University, that a likable stock could directly signal marketing on the part of the firm, which might influence judgment of its symbol’s likability. EAT, for instance, may not convey information about its related company, Brinker International Inc., /zigman2/quotes/203470869/composite EAT -5.02% which owns Chili’s, but it’s a “cute” name, says Green. “That influences the likability of the ticker,” he says. “Maybe it’s a signal of management quality, so people might give it a higher valuation.”
The cleaner way to identify a ticker’s effect, Green adds, would be to take a sample of companies, randomly change their tickers to likable or unlikable ones, and then observe what happens to their trading and valuations.
Xing says he is at work on a related paper looking at corporate names and their effect on profitability. Meanwhile, he says, his recent paper can serve as a caution for investors who may not be aware of their innate market biases.
“When you pick out the name of your stock,” Xing says, “you need to be really careful.”
Matthew Kassel is a writer in New York. Email him at email@example.com .
The article “LUV your stock: study shows that ticker symbols matter” first appeared on WSJ.com .