New psychology research from Princeton University suggests that the sound of a company’s name can influence its success in the markets — specifically, that stocks of companies with simple, pronounceable names outperform market averages. In addition, stocks with pronounceable ticker symbols (e.g. KAR) tend to outperform the market as well. The magnitude of the effect is greatest shortly after a company makes its market debut; researchers hypothesize that early in a stock’s trading life, public information about its prospects are scant, which magnifies the effect of subtler behavioral decision making biases.

Alter and Oppenheimer did a second study looking at 89 real stocks that were traded on the New York exchange between 1990 and 2004. They asked 16 undergraduates to grade the fluency of the stock names on a sliding scale. Then they checked on the stocks’ performance.

As anticipated, the more complex a share’s name, the poorer it performed on the first day of trading. The effect appeared to wane as time went on; after 6 months, when more information about the stock was presumably available, the name alone couldn’t be used to predict a single stock’s performance.

But the overall impact on a portfolio of stocks was, in this case at least, substantial. Alter and Oppenheimer calculated how much a US$1,000 investment would have fared if it were invested in either the ten most fluent, or ten least fluent, shares. After just one day, the fluent portfolio was $118 ahead of the tongue-twisters; and after a year, it was US$333 up.

Read more: Simple sounds make for sound investments - Easily pronounced stocks do better on the market

via kottke