Cognitive Daily

Pronounceable company names lead to higher stock prices

Posted by Dave Munger on May 30, 2006
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According to an article in the New York Times, names of companies that are easier to pronounce lead to higher stock prices.

The researchers … tested name complexity and the performance of real initial public offerings listed on the New York and American Stock Exchanges. A $1,000 investment in a group of stocks with easy names yielded $112 more in profit than the same investment in a group with difficult names. But the effect began to disappear over time.

The researchers argue that names that are “easier to process” are valued more by purchasers.

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Comments

  1. #1 Aero
    May 30, 2006

    If the effect disappears over time and companies with hard to pronounce names have lower stock prices to begin with then wouldn’t they perform the best?

  2. #2 Dave Munger
    May 30, 2006

    I think probably what this means is that the stock prices even out — they both started at the same point, the pronounceable ones shoot ahead early on, then the harder names eventually catch up.

    I’d be interested to know if more pronounceable names or ticker stocks are more likely to “bubbles,” where the stock price inflates wildly before coming back down to earth.