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ABCs of Trading: Behavioral Biases affect Stock Turnover and Value

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Listed:
  • Jennifer Itzkowitz
  • Jesse Itzkowitz
  • Scott Rothbort

Abstract

Psychological research suggests that individuals are satisficers. That is, when confronted with a large number of options, individuals often choose the first acceptable option, rather than the best possible option (Simon, 1957). Given the vast quantity of information available and the widespread convention of listing stocks in alphabetical order, we conjecture that investors are more likely to buy and sell stocks with early alphabet names. Consistent with this view, we find that early alphabet stocks are traded more frequently than later alphabet stocks and that alphabeticity also affects firm value. We also document how these effects have changed over time.

Suggested Citation

  • Jennifer Itzkowitz & Jesse Itzkowitz & Scott Rothbort, 2016. "ABCs of Trading: Behavioral Biases affect Stock Turnover and Value," Review of Finance, European Finance Association, vol. 20(2), pages 663-692.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:2:p:663-692.
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    File URL: http://hdl.handle.net/10.1093/rof/rfv012
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    References listed on IDEAS

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    1. Michael J. Cooper & Orlin Dimitrov & P. Raghavendra Rau, 2001. "A Rose.com by Any Other Name," Journal of Finance, American Finance Association, vol. 56(6), pages 2371-2388, December.
    2. Alba, Joseph W & Hutchinson, J Wesley, 1987. "Dimensions of Consumer Expertise," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 13(4), pages 411-454, March.
    3. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
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    Cited by:

    1. Debraj Ray & Arthur Robson, 2018. "Certified Random: A New Order for Coauthorship," American Economic Review, American Economic Association, vol. 108(2), pages 489-520, February.
    2. Dierick, Nicolas & Heyman, Dries & Inghelbrecht, Koen & Stieperaere, Hannes, 2019. "Financial attention and the disposition effect," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 190-217.
    3. Harris, Mark N. & Novarese, Marco & Wilson, Chris M., 2022. "Being in the right place: A natural field experiment on the causes of position effects in individual choice," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 24-40.
    4. Li, Ang & Li, Ben, 2021. "Alphabetic norm and research output," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 50-60.
    5. Bendell, Bari L. & Kristal, Emma K., 2023. "Five naming strategies to help tell your organization’s story," Business Horizons, Elsevier, vol. 66(3), pages 387-404.
    6. Mustafa Disli & Koen Schoors, 2019. "The Dynamic Effects Of Bank Rebranding And Familiarity Bias," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/955, Ghent University, Faculty of Economics and Business Administration.
    7. Baer, Naomi & Barry, Erica & Smith, Gary, 2020. "The name game: The importance of resourcefulness, ruses, and recall in stock ticker symbols," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 410-413.
    8. Aymen Karoui & Sadok El Ghoul, 2022. "Fund names versus family names: Implications for mutual fund flows," The Financial Review, Eastern Finance Association, vol. 57(3), pages 509-531, August.
    9. Cheng, Hua & Hu, Cui & Li, Ben G., 2020. "Lexicographic biases in international trade," Journal of International Economics, Elsevier, vol. 126(C).
    10. Qiu, Jiayue & Wu, Hai & Zhang, Lijuan, 2021. "In name only: Information spillovers among Chinese firms with similar stock names during earnings announcements," Journal of Corporate Finance, Elsevier, vol. 69(C).
    11. Montone, Maurizio, 2022. "Does the U.S. president affect the stock market?," Journal of Financial Markets, Elsevier, vol. 61(C).
    12. Xing, Xuejing & Anderson, Randy I. & Hu, Yan, 2016. "What׳s a name worth? The impact of a likeable stock ticker symbol on firm value," Journal of Financial Markets, Elsevier, vol. 31(C), pages 63-80.
    13. Hu, Cui & Li, Ben G., 2021. "Chinese lexicography and stock trading," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 44-59.
    14. Jelena Cerar & Benoit Decreton & Phillip C. Nell, 2023. "What's in a Name? How Senior Managers use Name‐Based Heuristics to Allocate Financial Resources in Multinational Corporations," Journal of Management Studies, Wiley Blackwell, vol. 60(5), pages 1147-1177, July.

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