Bad Corp is better than Zqjrlbawzx Corp

July 1, 2009

Got a company to set up? Better go for a simpler name.

That is what psychologists at Princeton University found in a  survey when they studied data from two major U.S. stock exchanges on initial public offerings.

They found that people are more likely to purchase newly offered stocks that have easily pronounced names than those that do not. After the IPO, investing $1,000 in companies that have easy-to-pronounce names generated $333 more than investing in the 10 hardest to pronounce companies.

In one case, an initial investment of $1,000 yielded a profit of $112 more after one day of trading for a basket of fluently named shares than for a basket of “disfluently” named shares.

“These results imply that simple, cognitive approaches to modeling human behavior sometimes outperform more typical, complex alternatives,” the survey said.

The survey said the effect extends to the ease with which the stock’s 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.

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Its like on the internet where short and easy to remember domain names are the most valuable ones.

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