The Impact of Stock Names on the Expected Stock Return

Abstract

Every investor in the market has access to the stock names, making it the most popular information. However, this piece of information is often ignored by people and considered insignificant in the decision process. In fact, it is almost always the stock names that give investors the first impression of a stock, and thus psychologically speaking, should in turn impact the decision process. In this paper, we score the (Chinese) stock names according to the meaning and the efficiency of passing information, so that we can work out a quantitative analysis of the stock names. Theoretically we derive the relationship between the stock name scores and the expected stock returns. Practically we build up an imaginary market-neutral portfolio and analyze its return by historical data. From both the theoretical and the practical aspects we discuss the two hypotheses—the liking theory and the information theory, and we show that in the Chinese stock market, the liking theory dominates, which is opposite to the result from the US stock market.