Do Stock Tickers Matter?

Stock Tickers, or those 3 (or 4) letter symbols that designate a stock on an exchange, are often ignored when making investment decisions. Why would you give them much attention? It’s not like IBM’s ticker, literally “IBM,” helps it much, does it? Well new research says perhaps it can. A study published in the Journal of Financial Markets has found that the likability of a stock ticker can correlate to positive valuations when compared to less favourable tickers. It seems benign, but in the financial markets people will look for any advantage to get ahead.

The researchers asked subjects to rate ticker symbols from nearly 2,000 publicly traded companies based on how much they liked the symbol and how easy it was to pronounce. Turns out that stocks with symbols like JNJ, AAPL, and LUV had valuations 1.3% higher than those with tickers that were not nearly as appealing, such as CFW or ZQK. 1.3% may not sound like a lot, but an additional 1.3% return compounded annually leads to a substantially higher portfolio over the long term.

What could be causing this? A number of options are offered by the researchers, although it’s difficult to pinpoint the exact reason. My favourite is that a ticker is a subtle form of marketing by the company. For example Brinker International Inc., which owns the restaurant chain Chili’s, has a ticker of EAT. Cute, and slightly tacky, but it can be the little things like this that get investors to notice you over your competition.

So next time you are picking a stock (which, we may add, we advise against. You are much better off investing passively in broad market index funds), take a second look at the ticker symbol. It could be providing some extra value not seen in any financial statement or news release.

http://www.wsj.com/articles/luv-your-stock-study-shows-that-ticker-symbols-matter-1476065160

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