R&D, patents and stock return volatility
Recent finance literature highlights the role of technological change in increasing firm specific (idiosyncratic) and aggregate stock return volatility, yet innovation data is not used in these analyses, leaving the direct relationship between innovation and stock return volatility untested. The paper investigates the relationship between volatility and innovation using firm level patent data. The analysis builds on the empirical work by Mazzucato (Rev Econ Dyn 5:318–345, 2002 ; J Evol Econ 13(5):491–512, 2003 ) where it is found that stock return volatility is highest during periods in the industry life-cycle when innovation is the most ‘radical’. In this paper we ask whether firms which invest more in innovation (more R&D and more patents) and/or which have more important innovations (patents with more citations) experience more volatility in their returns. Given that returns should in theory be higher, on average, for higher risk stocks, we also look at the effect of innovation on the level of returns. To take into account the competition between firms within industries, firm returns and volatility are measured relative to the industry average. We focus the analysis on firms in the pharmaceutical industry between 1974 and 1999. Results suggest that there is a positive and significant relationship between volatility, R&D intensity and the various patent related measures—especially when the innovation measures are filtered to distinguish the very innovative firms from the less innovate ones. Copyright Springer-Verlag 2012
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2012)
Issue (Month): 4 (September)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00191/index.htm|
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yi Deng, 2005. "The value of knowledge spillovers," Working Paper Series 2005-14, Federal Reserve Bank of San Francisco.
- Malkiel, Burton & Campbell, John & Lettau, Martin & Xu, Yexiao, 2001.
"Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk,"
3128707, Harvard University Department of Economics.
- 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.
- John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2000. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," NBER Working Papers 7590, National Bureau of Economic Research, Inc.
- Lubos Pastor & Pietro Veronesi, 2004.
"Was There a Nasdaq Bubble in the Late 1990s?,"
NBER Working Papers
10581, National Bureau of Economic Research, Inc.
- Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
- Schwert, G William, 1989.
" Why Does Stock Market Volatility Change over Time?,"
Journal of Finance,
American Finance Association, vol. 44(5), pages 1115-53, December.
- G. William Schwert, 1988. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
- Mariana Mazzucato, 2002. "The PC Industry: New Economy or Early Life-Cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 318-345, April.
- Bresnahan, Timothy F & Greenstein, Shane, 1999.
"Technological Competition and the Structure of the Computer Industry,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 47(1), pages 1-40, March.
- Timothy F. Bresnahan & Shane Greenstein, 1997. "Technological Competition and the Structure of the Computer Industry," Working Papers 97028, Stanford University, Department of Economics.
- Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70, pages 556.
- Gambardella,Alfonso, 1995. "Science and Innovation," Cambridge Books, Cambridge University Press, number 9780521451185, 1.
When requesting a correction, please mention this item's handle: RePEc:spr:joevec:v:22:y:2012:i:4:p:811-832. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.