By January of 1999, a company called MIS International had yet to turn a profit or do any business. Its stock was trading at well below 50 cents per share.
The firm then made its first move, adopting a new name, Cosmoz.com, that would telegraph its aspirations in the blooming digital economy. The market rewarded it handsomely for the change: Its stock price soared to $5, and later cooled off to $2. Wary of the way stocks like this could lure in investors, the director of the SEC’s investor-education office told the Wall Street Journal, “Don’t invest by just a name. That is asking for losses.”
She was being admirably cautious, but she was wrong.
In 2001, when people were still sorting through the pixelated debris of the dotcom bust, three finance professors from Purdue University published a study of the fates of 95 companies that added “.com,” “.net,” or “Internet” to their names during the bubble. They found that on average, the stock prices of these companies increased 74 percent over the period of time from five days before the name-change announcement to five days afterward.
The researchers called this surge "striking," in part because the gains resulting from a name change didn't disappear over time. In other words, a company that changed its name, and nothing else, got a one-time, permanent increase in its stock price. Perhaps even more striking was the fact that this effect was spread across all the firms studied—even those that didn’t do business on the Internet.