ABCs of Trading: Behavioral Biases affect Stock Turnover and Value *

Alphabeticity Bias in 401(k) Investing

“…In the extant investments literature, alphabeticity bias has only been found in large choice sets, such as aggregate investments in the stock and mutual fund markets (Itzkowitz, Itzkowitz and Rothbort, ; Itzkowitz and Itzkowitz, ; Jacobs and Hillert, ). This is not surprising, as individuals who encounter greater numbers of choice options are more likely to use heuristics when making decisions (Ülkümen, Chakravarti and Morowitz, ).…”

“…We also contribute to the behavioral finance literature by extending the nascent literature examining the influence of name on choice. Prior work shows that name fluency (Alter and Oppenheimer, ; Head, Smith and Wilson, ; Green and Jame, ), name memorability (Grullon, Kanatas and Weston, ), and alphabeticity (Itzkowitz, Itzkowitz and Rothbort, ; Itzkowitz and Itzkowitz, ) affect stock selection. In work that most seemingly relates to ours, Jacobs and Hillert () test the implications of alphabeticity bias on mutual fund flows.…”

“…While they observe aggregate fund flows as the result of all market participants’ investment decisions (more similar to the stock market), our study is the first to show that names influence individuals’ fund allocation decisions in the limited choice set of 401(k) plan menus. Importantly, to this point, alphabeticity bias has been found in the presence of a large choice set, such as stock investing (Itzkowitz, Itzkowitz and Rothbort, ; Itzkowitz and Itzkowitz, ) and mutual fund investing (Jacobs and Hillert, ). Alphabeticity bias effects in a relatively small mutual fund choice set where the cost of search is significantly lower, such as in 401(k) investment menus, had been an important yet unexplored issue in the extant literature.…”

“…And, because they are solicited more often, alumni with early alphabet names donate more than those with later alphabet names (Meer and Rosen, ). Stocks beginning with early alphabet letters have been found to have higher turnover, liquidity, and valuation than later alphabet stocks (Itzkowitz, Itzkowitz and Rothbort, ; Itzkowitz and Itzkowitz, ; Jacobs and Hillert, ).…”

Certified Random: A New Order for Coauthorship

“…This order effect is certainly in line with research on marketing: products presented earlier exhibit higher probabilities of selection, as the aptly ordered article by Carney and Banaji (2012) observes. Even stocks with earlier names in the alphabet are more likely to be traded; see another aptly ordered paper by Jacobs and Hillert (2016), or Itzkowitz, Itzkowitz, and Rothbort (2016).…”