Alphabet-Order Effects in Stock Returns and the Dot-Com Effect

Summary

The document raises the possibility that stocks listed early alphabetically might have different returns. The observation comes from a backtest comparing the first 10 and first 100 alphabetically ordered S&P 500 symbols; the first 10 appeared to perform better. It also notes that the last 10 stocks performed even better, and points to research on the dot-com effect as related background.

This is an exploratory question, not a demonstrated trading strategy. The author recognizes that the comparison may be biased, including because Apple is among the first 10 symbols, and provides no controls, statistical tests, or detailed results. The discussion asks whether any alphabet-related return pattern exists across markets and whether it might persist or vary with the business cycle. The cited answer directs readers to papers on the dot-com effect but does not summarize their methods or findings, so the document alone cannot establish an alphabet effect or its cause.

Key ideas

• A backtest comparison suggested that the first 10 alphabetically ordered S&P 500 symbols outperformed the first 100.
• The last 10 symbols reportedly performed even better, complicating a simple early-alphabet explanation.
• The author flags possible selection bias, including the presence of Apple among the first 10 symbols.
• The document points to dot-com effect research but offers no statistical evidence establishing an alphabet-based return anomaly.

Tags

# An Alphabet Effect?


# An Alphabet Effect?












While I prepared some quick and lazy charts picking just the first 10 symbols out of the SP500 for this other question I observed, that the first 10 symbols (figure 1) actually outperformed the larger selection (100 symbols in figure 2) by quite a bit.

Figure 1: Cumulated backtesting performance of first 10 alphabetically sorted symbols in SP500

Figure 2: Cumulated backtesting performance of first 100 alphabetically sorted symbols in SP500

At first I put the difference down to chance but later remembered that start-ups are advised to choose names early in the alphabet. A quick google search turned up some recent research on this anomaly. And as discussed elsewhere on the site some anomalies persist quite some time.

While my observation is most likely very biased (Apple is part of the first 10 symbols) I am wondering if anybody else has observed anything similar in other markets or instruments or whether there is more related research. It would be of particular interest to see if, and why, any such affect would be stable over time or periodic (e.g., occurring during certain phases in a business cycle).

Edit: note, last 10 SP500 stocks would have performed even better then the first...

Can you share research or own observations regarding such an "alphabet effect"?

## Answer by James (score 2, accepted)

https://quant.stackexchange.com/a/15348

There are a couple of nice papers about the dot-com effect by Michael Cooper: full list, paper1, paper2

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.