You wouldn't want to have a company named 'Corona' right now

Over the last year, I've written a couple of posts about the naming of companies (see here and here). In both cases, those posts highlighted the effect of naming a company after 'blockchain', and the positive effects that has on share prices (albeit temporary). Now, we are seeing the opposite effect for companies with names related to 'corona'.

A new working paper by Shaen Corbet (Dublin City University) and co-authors (including my colleagues Greg Hou, Yang Hu, and Les Oxley) looks at the effect of the coronavirus pandemic on the share market returns for three companies: (1) Constellation Brands (the owner and importer of Corona beer in the US); (2) Corona Corp (a Japanese seller of air conditioners and other household items); and (3) Coronation Fund Managers (South African financial services firm). Using hourly share price data from March 2019 to March 2020, they find that:

...all of the analysed companies exhibit strong negative hourly returns in the period after the announcement of the existence of the COVID-2019 pandemic. Further, there is an exceptionally large significant increase in hourly volatility for each of the analysed companies... There is clear evidence that Constellation Brands (STZ) and Corona Corp (5909:JP) experienced a sharp and sustained deterioration in share prices outside of that expected through market-driven forces. The reasons for so would be deemed somewhat irrational, but mostly very unfortunately driven by name association.

As was the case for blockchain-named companies in the earlier research I blogged about, company names can have seemingly irrational effects on share prices (in this case, a negative effect). As I note in my ECONS101 class when we talk about the efficient markets hypothesis, asset prices (like share prices) can deviate substantially from what would be expected based on 'market fundamentals'. Those deviations can be persistent, if market participants believe that other market participants are going to continue to act irrationally. Eventually though, there will be a return to normality. Perversely then, this might actually be a good time to buy shares in Constellation Brands, if you believe that they can weather the coronavirus pandemic storm without bankruptcy.

[HT: Les Oxley was interviewed about this research on Newshub earlier this week]

Read more:

• The share market effects of naming companies after blockchain
• Cryptocurrency company name changes; and the energy costs of bitcoin mining