Trading techniques... what’s in a name?

The last two years have seen several major companies change their name. Most notable was Facebook’s decision to rename itself Meta Platforms (aka Meta) in late October. Mark Zuckerberg, chief executive of the social media giant, presented this as a move which reflected the company’s long-term shift from traditional social media towards the “metaverse” (which involves, among other things, virtual reality). Cynics argued that it was an attempt to distract from slowing growth (especially among younger users) and the looming threat of regulation.

Certainly the move doesn’t seem to have helped Meta/ Facebook’s share price, down by a third in the last five months.

Still, there’s definitely evidence that a name change can work in the short term if it shows a company jumping on a bandwagon. For example, a 2002 study by Michael Cooper and others from Krannert School of Management, Purdue University, found that during the dotcom boom of the late 1990s, companies that switched to names with the term “.com” outperformed the market by 74% within the next ten days. A follow-up study by Cooper two years later found that when the bubble collapsed, firms that stripped “.com” from their name similarly outperformed.

However, in the longer run, a name change is rarely a good sign. A 2007 study by Panagiotis Andrikopoulos of Coventry University, and Arief Daynes and Paraskevas Pagas of the University of Portsmouth, looked at 803 name changes in the UK from 1987 to 2002. It found that companies that changed names lagged the market for periods of up to 36 months, irrespective of how well or poorly they had done before the name change.