The alphabet and idiosyncratic volatility

We find that stocks with names earlier in an alphabetic ordering exhibit greater idiosyncratic volatility. Stocks whose names are in the first 5% of an alphabetic ordering have 4.5% higher idiosyncratic volatility relative to other stocks. To address potential concerns about early‐alphabet firms bei...

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Bibliographic Details
Published in:The Journal of financial research 2024-10, Vol.47 (3), p.569-600
Main Authors: Bergers, Okke, Blomkvist, Magnus
Format: Article
Language:English
Subjects:
Behavioral economics
Investment policy
Investor behavior
Securities markets
Volatility
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Summary:We find that stocks with names earlier in an alphabetic ordering exhibit greater idiosyncratic volatility. Stocks whose names are in the first 5% of an alphabetic ordering have 4.5% higher idiosyncratic volatility relative to other stocks. To address potential concerns about early‐alphabet firms being different, we study name changes. Idiosyncratic volatility is 7% higher when a name change causes a stock to move into the first 5%. We attribute these results to noise traders being more active in early‐alphabet stocks because of heuristic‐based investing. In support of this explanation, we find that the effect is strongest during periods of high investor sentiment and among stocks with high turnover. Our results provide evidence that noise traders contribute to the idiosyncratic volatility of stocks.
ISSN:0270-2592
1475-6803
DOI:10.1111/jfir.12369