Company Name Fluency and Stock Returns
28 Pages Posted: 22 Feb 2018 Last revised: 3 Nov 2020
Date Written: November 2, 2020
Research shows that stocks with fluent names trade at higher prices. However, it is not clear whether fluency simply appeals to naive investors, or actually identifies better firms. In this paper, we disentangle these two explanations. Consistent with our theoretical model, we find that the effects of fluency are concentrated among firms with a below-median market capitalization and an above-median sentiment beta. Companies with fluent names are more profitable, but this information appears to be only partially reflected in stock prices due to the presence of unsophisticated investors. Correspondingly, stocks with fluent names yield higher abnormal returns relative to stocks with nonfluent names.
Keywords: Fluency; Investor Recognition; Asymmetric Information; Stock Returns
JEL Classification: G12, G14, G41
Suggested Citation: Suggested Citation