Sent: 17-02-2009 10:19:01
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Company Names and Investing
I have compiled a series of articles for the Monthly ATC Digest on how sport and the weather can affect markets (see Edition 303 of the ATC Weekly Chronicle (or see Edition 127 of the ATC Weekly Journal) for more information). Some people have difficulty in accepting that things like sport or the weather can actually influence markets. But that is not the least of it. It seems that even using certain types of words to describe/name companies can have an effect on the decision to invest in those companies. Sounds far fetched but that is what some recent research has found.
As I explain in the Digest article, I recently obtained a copy of a Thesis from the University of Western Sydney entitled "Does Weather Affect Mood and Thereby Influence Investment Decision Making?" The research revealed this relationship. As the researcher Wright notes, whilst it sounds implausible that normal variations in daily weather can significantly affect market returns, there is research indicating that weather variations at the stock exchange can influence stock returns. This has been interpreted as an indication that mood can affect investment decision-making. But this research takes things a little further by asking that if 'sunny' or 'cloudy' weather can affect investment by links to positive and negative moods, can weather-related company names be linked to investment preferences?
Wright notes that weather is claimed to be one of the most pervasive background environmental variables in human life. "Common wisdom" linking to warmth and cold is often used to describe abstract concepts, e.g. describing a person as a "cold fish" suggests that they are selfish and distant, whereas labeling someone as having a "warm smile" is to type them as being kind and caring. However, both judgments affect the relationship with the person being evaluated. It has been suggested that these findings are based upon the conditioning of past physical experiences and that mood mediates the relationship between weather and behaviour.
Not only that, it is thought that when people in positive moods analyse brand names, they are likely to unconsciously "activate the category membership" of the brand. The individual may well activate other brand names they consider are members of the same category. This explanation could provide a link between weather-related company names and mood, e.g. 'sunny' weather names activating the category of good weather and allied 'good' feelings and thereby encouraging investment. Once again this sounds far fetched, but evidence suggests there may actually be something in it
Findings from 2000 that indicated if a person feels 'good', this can be due to 'sunny' weather stimuli evoking mood congruent memories and opting more favourably for the positive choices (in this instance, 'sunny' weather-related company names). Theoretically, it might be expected that behaviour concerned with favourability ratings for 'sunny' weather-related company names would find people voting more highly for options that have unconscious links to good memories, i.e. the heuristic process.
Wright's research reveals a significant relationship between company names and their likeability as well as the willingness of people to invest in such companies. What this means is that the names of companies can influence a person's attitude towards that company. Not something the proponents of Efficient Market Theory would be keen to hear I am sure.
However, it is always useful to increase our understanding and awareness of whether and how traders and brokers are influenced by mood when making investment decisions. As Wright so aptly points out, whatever the reasons for traders' investment choices, it is individual investors and companies who are ultimately affected. Flow-on effects include decreased returns to customers from companies losing money on the stock market, increased mortgage interest etc.
The article entitled "Language & Market Behaviour" will be appearing in a forthcoming edition of the ATC Monthly Digest.
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