Research shows that, following an initial public offering, stocks that have pleasant, easy to pronounce names outperform those with “ugly” names, says Marketwatch.
Adam Alter, a professor of marketing and psychology at New York University and the co-author of a widely cited study that examines the relationship between fluency and stock performance, said: “While people pay a lot of attention to the numbers in front of them when making decisions about stocks, it’s often what’s going on in the background that is driving the decision.”
Whereas financial analysts delve into the differential performance of industries and market sectors, a straightforward psychological principle cuts across these categories and predicts, quite simply and robustly, that companies with [easily pronounced] names like Barnings Incorporated will initially outperform [right after an IPO] companies with [difficult] names like Aegeadux Incorporated.
Some recent examples seem to bear this out. The names of LinkedIn Corp. (NYSE: LNKD) and Zipcar Inc. (NASDAQ: ZIP) seem well matched to their readable tickers, and their share prices more than doubled on each firm’s first trading day. Manchester United Ltd. (NYSE: MANU) is a bit more of a mouthful, and its IPO was only so-so. The name of M/A-COM Technology Solutions Holdings Inc. (NASDAQ: MTSI) may be a real mouthful, but the ticker is quite readable, and shares popped 8% following the IPO. However, PennantPark Floating Rate Capital Ltd. (NASDAQ: PFLT) and its unpronounceable ticker fell 11% on its first trading day. And regardless how you pronounce Facebook Inc.’s (NASDAQ: FB) ticker, no one thinks that IPO went well.
Not everyone is on board with this notion. Marketwatch quotes Raghavendra Rau, a professor of finance at the University of Cambridge:
Unless either (1) the investors who both buy and sell are significantly more optimistic than investors who don’t trade on name fluency (which seems unlikely) or (2) other investors treat trading volume as some kind of indicator on stock value, there will be no effect on prices. In either case, the burden of proof is on the researcher to show which mechanism is at work.
And there is Oaktree Capital Group LLC (NYSE: OAK), which despite its readable ticker fell following its IPO. Performant Financial Corp. (NASDAQ: PFMT) jumped more than 12% on its first trading day, despite the slightly rude ticker. So perhaps it is not worth putting much stock in the notion that the ticker makes or breaks the IPO.