The ease of pronouncing the name of a company and its stock ticker symbol influences how well that stock performs in the days immediately after its initial public offering, two Princeton University psychologists have found.
A new study of initial public offerings (IPOs) on two major American stock exchanges shows that people are more likely to purchase newly offered stocks that have easily pronounced names than those that do not, according to Princetons Adam Alter and Danny Oppenheimer. The effect extends to the ease with which the stocks ticker code, generally a few letters long, can be pronounced -- indicating that, all else being equal, a stock with the symbol BAL should outperform one with the symbol BDL in the first few days of trading.
"This research shows that people take mental shortcuts, even when it comes to their investments, when it would seem that they would want to be most rational," said Oppenheimer, an assistant professor of psychology. "These findings contribute to the notion that psychology has a great deal to contribute to economic theory"
Chad Boutin | EurekAlert!
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