Why Your Stock Ticker Symbol Matters
When investors offer to buy more of a company’s stock than its owners want to sell, the share price goes up. The reason could relate to future profits, an approval from the FDA, a new patent.
Or, it could be a clever stock ticker symbol.
Clever Stock Ticker Symbols
In a 2019 paper, researchers from Pomona College measured the impact of a clever ticker symbol. Looking at the symbols that companies use for trading, they defined “clever” as a witty combination of letters that relates to what the firm does. (My favorites included BOOM for a company in the explosives business and OINK for hog farmers.) They also explained that whereas NASDAQ ticker symbols have four or five letters, three is the max for a NYSE listing. Using the extra letters, NASDAQ firms can be more creative.
The Pomona paper had two parts. Looking back, it sought to replicate a past study in which the average stock price increase of 82 companies with clever ticker symbols increased more than a benchmark market average. The prior study covered 1984 to 2005 while the new one, with 20 stocks, was for 2006 to 2018. In both, the stock prices of the companies with the clever stock ticker symbols, on average, outperformed the broader market.
You can see that the original stocks chosen in first study continued to fare well from 2006 to 2018:
Correspondingly, the 20 newly selected stocks, also outperformed a market portfolio:
Then, confirming the perceived value of a witty ticker, a Bloomberg reporter checked what people would be willing to pay the group that owned the right to use the word MEME. Offered $250,00, they said no.
Our Bottom Line: Behavioral Economics
The value of a ticker name takes us into the realm of psychology. A father of behavioral economics, Daniel Kahneman, a psychologist, won the Nobel Memorial Prize in Economic Sciences in 2002.
With ticker names, the psychology of memory is our focus. As the Pomona researchers explained, remembering names begins with acquisition and then continues with retention, storage, and finally retrieval. When a name is witty, it could activate a pleasant response and more easily be retained. It will even generate a positive neural reaction that irrationally makes us expect the stock to fare well.
Consequently, VCA Antech, a veterinary firm, was wiser to have selected WOOF for its stock ticker than VCA. It is even possible that the cryptocurrency exchange, Coinbase, chose NASDAQ over the NYSE because its ticker could be COIN.
My sources and more: Thanks to Marketplace for reminding me that ticker symbols matter and leading me to the Pomona studies, here and here. From there, I took a peek at a ticker pronounceable study. And finally, it all came together with the price of clever ticker symbols. (Please note that the x-axis of Figure 3 starts with Dec. 31, 2005. I assume that is why the researchers say their time frame was 2006–2018.)
Originally published at https://econlife.com on September 3, 2021.
