End-word tones of stock names and stock price anomalies: Empirical evidence from China's IPO markets

Abstract

Behavioral finance research has shown that in IPO market, both the stock name and the stock code can affect investors' judgement of the value of a stock, thus causing significant IPO price anomalies. However, no study has examined the possible impact of the end-word tones of the stock names on investors' cognitive biases and their consequences in the Chinese IPO market. The results of this paper show that, firstly, the average price-to-earnings (P/E) ratios of stocks with easy pronunciation of the end-word tones in their names (easy-pronunciation stocks) are consistently higher than those of stocks with difficult pronunciation (difficult-pronunciation stocks), both on the first day of the IPO and about six months after the IPO. Secondly, on the first day of the IPO, easy-pronunciation stocks have higher abnormal returns than those of difficult-pronunciation stocks, but in the following 12 months, the cumulative abnormal returns of easy-pronunciation stocks decreases more than those of the difficult-pronunciation stocks. Finally, the effects of end-word tone on both P/E ratios and abnormal returns of IPO stocks in China are generally significant through the first day of the IPO to the following 12 months, but these effects change from positive to negative about six months after the IPO day.