What's in a Name? For Stock Tickers, Plenty.
The alphabet soup of company ticker may be even more important than the companies may realize.
Research by Gary Smith, Alex Head and Julia Wilson of California's Pomona College found that clever tickers can actually help boost the value of a stock. The easier a ticker is to remember, the more likely a company will be a go-to play for some.
The professors write that "eye-catching" ticker symbols "might be a useful signal of the company's creativity, a memorable marker that appeals to investors," even if there is a risk investors could alternately think that a "company feels it most resort to gimmicks to attract investors." Among the possibilities are that "investors recall a memorable ticker symbol when they decide which stocks to buy," the authors suggest.
In their research, the authors of Would a Stock by Any Other Ticker Smell as Sweet studied the performance of stocks with clever ticker symbols from 1984-2004. That portfolio of stocks, they found, would have "beaten the market by a substantial and statistically significant margin," nearly doubling the annual compounded return of a broader array of NYSE and NASDAQ stocks. Overall, 51 of the 82 "clever-ticker" stocks beat the NASDAQ/NYSE index."Over the past 20 years, a substantial number of companies have chosen clever ticker symbols for their stocks," the researchers wrote. "On average, these stocks have outperformed the market by a substantial and statistically significant margin. We do not know why these stocks have done well. Perhaps a clever ticker symbol has been a useful barometer of the managers' ability -- ability that revealed itself over time as the company repeatedly exceeded investors' expectations. Or, perhaps, a clever ticker matters because it is memorable and has a subtle, but persistent, influence on investors who buy the stock and on those who are considering a merger or acquisition ... If the latter is correct, then perhaps companies can use a memorable ticker symbol to attract attention." At times ticker symbols, clever or not, can stir up controversy. Transcontinental Realty, which uses the ticker symbol (TCI), was apparently confused for Tele-Communications Inc. during an ultimately failed merger with BellAtlantic in 1994. Shares of the Realtor spiked -- for a while. More recently, lawsuits have sought to protect a company's good name (literally). In August of last year, Select Sector SPDR Trust sued Invesco PowerShares Capital Management for trademark infringement over a series of ETFs they claim were intentionally given similar names (an XL prefix and, in some cases, an added "S" at the end of ticker were the only differences). Courts didn't get the chance to decide whether ticker symbols can be protected or treated as trademarks; the two companies reached an agreement. As part of a deal, the contested PowerShares SmallCap Sector ETFs changed their symbols. Some sectors and business categories tend to attract creative ticker names, while others are more thematic. We took a look at five such groupings.
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