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The Return to Independent Invention: Evidence of Risk Seeking, Extreme Optimism or Skewness-Loving

Author

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  • Thomas Astebro

    (Joseph L. Rotman School of Management - University of Toronto)

Abstract

Examining a sample of 1,091 inventions I investigate the magnitude and distribution of the pretax internal rate of return (IRR) to inventive activity. The average IRR on a portfolio investment in these inventions is 11.4%. This is higher than the risk-free rate but lower than the long-run return on high-risk securities and the long-run return on early-stage venture capital funds. The portfolio IRR is significantly higher, for some ex ante identifiable classes of inventions. The distribution of return is skew: only between 7-9% reach the market. Of the 75 inventions that did, six realised returns above 1400%, 60% obtained negative returns and the median was negative.

Suggested Citation

  • Thomas Astebro, 2003. "The Return to Independent Invention: Evidence of Risk Seeking, Extreme Optimism or Skewness-Loving," Post-Print hal-00480030, HAL.
    • Handle: RePEc:hal:journl:hal-00480030
    DOI: 10.1111/1468-0297.00089
    as

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