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R&D, risks and overreaction in a market with the absence of the book-to-market effect

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  • Hung, Weifeng
  • Chiao, Chaoshin
  • Liao, Tung Liang
  • Huang, Sheng-Tang
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    Abstract

    Prior studies document that the book-to-market (BM) effect is absent in the Taiwan stock market. Using Taiwanese data covering from 1991 to 2006, we show that, after controlling for the size effect and the Fama and French's (1993) risk factors, the BM effect only exists for those firms with low R&D intensity essentially because these stocks suffer less from investors’ underreaction to R&D investment. The BM effect arises primarily from fundamental reversals acting as a proxy for investors’ overreaction.

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    File URL: http://www.sciencedirect.com/science/article/pii/S105905601100092X
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 22 (2012)
    Issue (Month): 1 ()
    Pages: 11-24

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    Handle: RePEc:eee:reveco:v:22:y:2012:i:1:p:11-24
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

    Keywords: Book-to-market; R&D; Overreaction;

    Find related papers by JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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