A Stock's Success May Be Blamed On The Name
Wednesday, July 12, 2006SUSIE GHARIB: "What`s in a name?" Shakespeare asked that question early in his play "Romeo and Juliet" and by the end, we knew the tragic answer: a lot, which, doesn`t seem like it should have anything to do with the stock market. But it does. Scott Gurvey explains.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Professionals who trade stocks explain their actions as the result of a careful study of an individual company`s financial performance, its future prospects and general economic conditions. You`d be hard pressed to find anyone who would say that the name of a company or its ticker symbol had anything to do with stock market performance. But two Princeton University psychologists have found that it does. While investigating ways to manipulate how people react to information, they found a link between ease of pronounce ability of corporate names and estimates of performance. They tested this finding using data on initial public offerings, believing that just after an IPO, the effect would be most noticeable.
ADAM ALTER, GRADUATE STUDENT, PRINCETON UNIVERSITY: We showed that both the easy to pronounce companies did better immediately after they had entered the market and this was on the New York Stock Exchange and then we extended it by looking at the ticker codes and we looked, we divided them into those that were pronounceable and those that weren`t pronounceable and both on the New York Stock Exchange and in the American exchange we found that the ones with pronounceable ticker codes did better immediately after they had entered the market.
GURVEY: The researchers point out that pronounce ability was not the only or even the most significant factor influencing trader`s decisions, but it was strong and measurable. The findings are part of a larger fieldof study into what is called fluency.
DANNY OPPENHEIMER, PROFESSOR, PRINCETON UNIVERSITY: Fluency is this notion that as humans, we not only can think, but we can think about thinking. So we realize how easy or difficult it is to process information. So if something is easy to process, we can think to ourselves, well why is it easy to process and we can use that information that it`s easy to process to make other judgments. We tend to like things more if they are easier to process.
GURVEY: We already knew that easy and memorable names are important to product sales. Now we know they are important to stock performance as well. When I do my IPO, I`m going to name my company "Fred". Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
