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Does Innovation Explain the Skewness of Stock Returns?

Author

Listed:
  • Baig, Ahmed

    (Boise State University, Idaho, U.S.)

  • Butt, Hassan Anjum

    (Missouri Southern State University, Missouri, U.S.)

  • Fitwi, Abrar

    (Saint Mary's College, Notre Dame, Indiana, U.S.)

  • Smith, Joey

    (College of William & Mary, Virginia, U.S.)

Abstract

This paper investigates the impact of firm-level innovation on the skewness of stock returns. Using data on a broad sample of equities from the major US stock exchanges, we find that innovative companies exhibit strong positive skewness. Our results are robust to both input and output measures of innovation as we find that increases in both firm-level research and development expenditure (R&D), as well as the number of patents, are positively associated with future stock return skewness. Our results hold using both systematic and idiosyncratic measures of skewness while controlling for various stock characteristics, time, and industry-fixed effects.

Suggested Citation

  • Baig, Ahmed & Butt, Hassan Anjum & Fitwi, Abrar & Smith, Joey, 2021. "Does Innovation Explain the Skewness of Stock Returns?," American Business Review, Pompea College of Business, University of New Haven, vol. 24(2), pages 12-31, November.
    • Handle: RePEc:ris:ambsrv:0036
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    References listed on IDEAS

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    More about this item

    Keywords

    R&D; Skewness; Innovation; Patents;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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