So the other day, I was wondering whether ticker symbols had any impact on stock price performance. Specifically, I was curious about whether tickers that came earlier in the alphabet (e.g. AAPL, AMZN) performed differently as compared to tickers further down the alphabet (e.g. TSLA, ZTS).
Impetus for the Idea
The thought struck me while I was looking at my portfolio via Interactive Brokers on my phone. Because of the limited screen size and the default alphabetical sort order of my positions, I observed that I tended to pay more attention to counters that were displayed upfront (those with tickers earlier in the alphabet) as compared to counters that required scrolling in order to be visible (those with tickers later in the alphabet).
Was it just a coincidence that FAANG stocks - Facebook, Apple, Amazon, Netflix and Google - all have tickers that fall within the first half of the 26-letter alphabet, with the sole exception of Netflix, which just tip overs into the 2nd half, with N at the 14th position? A quick look at the five largest public corporations in the world (by market capitalization) [Wikipedia] also showed that the top five, throughout 2020 as well as at 2021, were all of the early-alphabet category. Intrigued!
[factoid: at time of writing, I held only two positions with tickers in the 2nd half of the alphabet: QQQ and ZTS. The rest of my portfolio comprised tickers in the 1st half of the alphabet, i.e. A to M]
Tangential finding from an earlier study
I briefly googled to see if there was any past study done on this (didn't come across, so perhaps an area for novel research!) but instead I found an excerpt of a 2006 Princeton study that found correlation between popularity of a stock after IPO and the ease of pronouncing a company's name. In addition, the study drew similar conclusions about the company's ticker symbol, stating 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."
Now, isn't that fascinating?
While the study's findings were different from my initial question in two significant ways - (i) it focused on the ease of pronunciation, rather than the alphabetical order; and (ii) it only looked at stock performance right after IPO, whereas I was interested in longer-term performance - the fact that such an observation could be gleaned from real-world data makes me fairly convinced that there could be some sort of association between a stock ticker's alphabetical order, and perhaps either the stock's performance, or interest in the counter. (Interest not necessarily translating to positive returns.)
Basis for my hypothesis
One of the reasons I think such a relationship could exist is the recent emergence of DIY stock trading. As recently as two decades ago, would-be stock purchasers would typically go through a broker, making a phone call to instruct their (human) broker that they wanted to purchase XX shares in YY company at AA price. The would-be purchaser typically would not view any kind of alphabetically-sorted list, before making their instruction. (This is not to say that the would-be purchaser simply plucked their intention out of thin air; they would, in all likelihood, mull over the names - or perhaps tickers - of various companies, before determining that they would want to purchase YY company rather than say ZZ company. The point here is that the would-be purchasers is unlikely to have encountered an alphabetically-ordered list of any kind in the course of their evaluation.)
Today, the typical mode to conduct such a transaction would be via an online broker, either via a web browser, mobile app, or the like. Such platforms provide the added ability to easily view one's portfolio, e.g. through a dashboard. As with any kind of list, there needs to be a default sort order, and I venture that for almost all such brokerage platforms, the default sort order would be alphabetical ascending, placing tickers like AAPL and AMZN at the top, GOOG a bit further down, TSLA further down still... you get the idea. Humans have a natural tendency to cycle through a list from top to bottom, which leads me to believe that there is a possibly-unresearched question of whether ticker symbols correlate with attention paid to the stock, translating into potential interest, and potentially translating into outsized performance. (The point that potential interest may not translate into actual demand for the stock is not lost here, though in this era of meme stocks, I dare hazard that "interest" in a stock tends to translate into positive movements in the stock price.)
Possible angle for research
Acquiring the data required for analysis is probably not insurmountable, given how stock price information is widely available on the internet. The main challenge would be deciding how to measure the dependent variable, and how to control for the various possible interacting factors.
For instance, if we took, say, all 3000 listed companies in the Russell 3000 index, we would expect to find some heterogeneity in the frequency distribution of the leading alphabet of the ticker, for instance, more tickers starting with 'A' than tickers starting with 'V'. We can control for this by taking the average performance for all tickers starting the alphabet, although we may have few data points for certain starting alphabets. Depending on the exact nature of the question we are trying to answer, we could even aggregate our data (e.g. into two groups: Group 1 comprising tickers starting with alphabets A through M, and Group 2 comprising tickers starting N through Z.)
It would then be a matter of testing:
- Null hypothesis: the stock price returns of Group 1 is same as the stock price returns of Group 2
- Alternative hypothesis: the stock price returns of Group 1 is different from the stock price returns of Group 2
- Market cap - if the pre-existing market cap of Group 1 is different from the pre-existing market cap of Group 2, and market cap has correlation with stock price returns, we could end up wrongly rejecting the null hypothesis (Type 1 Error).
- Industry or sectoral concentration - similar to the above, if Group 1 had a higher concentration in fast-growing sectors (e.g. technology) while Group 2 had a higher proportion of slower-growing sectors, we could again commit a Type 1 Error unless this difference is adequately controlled for.
- Ease of pronunciation - with the 2006 Princeton study finding that ease of pronunciation of company name and ticker symbol was positively correlated with purchases of the new stock following its IPO, we would have to find a way to negate any potential effect of Group 1 tickers being generally easier to pronounce than Group 2 tickers, in order to isolate just the effect of alphabetical ordering.
As you can tell, this analysis would not be a trivial exercise, but I feel that existing methods of quantitative research can be easily applied to study this topic and possible yield some interesting insights.
Closing thoughts - What's in a name?
Having posed this question and then regaled you with my idea of how this could potentially be studied, I'll end off with a slightly more pragmatic thought that circles backs to the Princeton study. Danny Oppenheimer, one of the Princeton co-authors, was quoted as saying that "These findings contribute to the notion that psychology has a great deal to contribute to economic theory."
This statement is effectively irrefutable - psychology surfaces in every aspect of human life, and explains how humans have certain biases, or how our perceptions sometimes depart from reality, etc. We probably still don't know how much influence psychology wields over human behaviour leading to economic consequences. Stemming from the observation that easily-pronounced tickers tend to outperform following the IPO, is there then also a possible relationship between the cognitive ease of associating a company's ticker symbol, with object of the company itself, typically represented cognitively by the company name?
On US exchanges, key companies often have ticker symbols that are easily-recognisable variants of the company name, e.g. Apple/AAPL, Tesla/TSLA, General Motors Company/GM, Advanced Micro Devices/AMD etc. This has evolved to become almost a cultural norm of sorts, and companies considering a listing depart from this unwritten rule at their own peril.
But this isn't a global convention. In Hong Kong, for example, listed companies have a numerical ticker (e.g. 9988 for Alibaba). In Singapore, tickers comprise mix of alphabets and numerical digits. At some level, the leading alphabet of the tickers seems to be derived from the company name (e.g. DBS Group/D05, Wing Tai Holdings/W05, UOL Group/U14), but then there are enough exceptions to make this mnemonic useless - Singapore Airlines/C6L, Hong Leong Finance/S41, to name a few. I put forward the notion that the ticker naming system in Singapore makes it more difficult for laypersons to easily recall company-ticker pairs than the US system.
Could there actually be economic losses arising from the more-difficult-than-necessary association between company names and ticker symbols? Say DBS Group were listed as DBS instead of D05, Singapore Airlines as SQ instead of C6L, City Developments as CDL rather than C09, and Guocoland as GCL rather than F17. Would this have increased market participation and efficiency by lowering, perhaps just ever so slightly, the mental gymnastics required to figure out what is what? I mean, part of the reason why GameStop shot to meme fame was because people could easily input GME and satiate their curiosity on the latest ongoings, rather than having to guess whether it was G48 or F19 or A83. By removing just one additional hurdle, the human brain is freed up just enough to do one additional task - and that task could very well be making a stock purchase decision.
I'm going to put my money that Grab's upcoming listing via the Altimeter SPAC is almost certainly going to gun for the GRAB ticker symbol. The notion that Grab would prefer GB or G01 or GR413 or some other variant over GRAB is beyond absurd. We should then question whether absurd practices, perhaps due to legacy reasons, continue unabated on our very shores, and at what cost.
