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Research & Development And Volatility Of Equity Returns In The French Market

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  • Sami Gharbi
  • Jean-Michel Sahut
  • Frédéric Teulon

Abstract

This paper examines the link between research and development (R&D) and idiosyncratic volatility for a panel of large French quoted companies. We investigate whether the intensity of R&D investment makes the firm’s stocks riskier. We suggest that R&D activities generate information asymmetry and uncertainty about the firm’s future cash flows and make its idiosyncratic volatility higher. Our results show that R&D investment intensity should be considered as a determinant of the idiosyncratic volatility and that R&D increases the riskiness of the firm.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-120.

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Length: 23 pages
Date of creation: 25 Feb 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-120

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Related research

Keywords: R&D; volatility; asymmetric information; risk; CAPM.;

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References

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  1. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, 02.
  2. Michael K. Fung, 2006. "R&D, knowledge spillovers and stock volatility," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(1), pages 107-124.
  3. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  4. Amit Goyal & Pedro Santa-Clara, 2003. "Idiosyncratic Risk Matters!," Journal of Finance, American Finance Association, vol. 58(3), pages 975-1008, 06.
  5. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  6. Bronwyn H. HALL & Raffaele ORIANI, 2004. "Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France," Economics Working Papers ECO2004/13, European University Institute.
  7. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
  8. Allan C. Eberhart & William F. Maxwell & Akhtar R. Siddique, 2004. "An Examination of Long-Term Abnormal Stock Returns and Operating Performance Following R&D Increases," Journal of Finance, American Finance Association, vol. 59(2), pages 623-650, 04.
  9. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
  10. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, European Finance Association, vol. 12(3), pages 433-463.
  11. Chan, Su Han & Martin, John D. & Kensinger, John W., 1990. "Corporate research and development expenditures and share value," Journal of Financial Economics, Elsevier, vol. 26(2), pages 255-276, August.
  12. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
  13. Eli Amir & Yanling Guan & Gilad Livne, 2007. "The Association of R&D and Capital Expenditures with Subsequent Earnings Variability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1-2), pages 222-246.
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Cited by:
  1. Lubica Hikkerova & Niaz Kammoun & Jean-Sébastien Lantz, 2014. "Patent Life Cycle: New Evidence," Working Papers 2014-367, Department of Research, Ipag Business School.
  2. Kaies Samet & Frédéric Teulon, 2014. "Creative intelligence," Working Papers 2014-362, Department of Research, Ipag Business School.

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