Nomen est omen? How and when company name fluency affects return expectations

Abstract

Investors perceive stocks of companies with fluent names as more profitable. This perception may result from two different channels: a direct, non-deliberate affect toward fluent names or a deliberate interpretation of fluent names as a signal for company quality. We use preregistered experiments to disentangle these channels and test their limitations. Our results indicate the existence of a significant non-deliberate fluency effect, while the deliberate fluency effect can be activated in boundary cases. Both effects are consistent across different groups of participants. However, whereas the fluency effect is strong in isolation, it has limitations when investors are confronted with additional information about the stock.

Keywords: return expectations, name fluency, attention, affect, information processing

JEL Classification: G4, G12