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The Role of Intangible Investment in Predicting Stock Returns: Six Decades of Evidence

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  • Lin Li

    (Audencia Business School)

Abstract

Using an intangible intensity factor that is orthogonal to the Fama–French factors, we compare the role of intangible investment in predicting stock returns over the periods 1963–1992 and 1993–2022. For 1963–1992, intangible investment is weak in predicting stock returns, but for 1993–2022, the predictive power of intangible investment becomes very strong. Intangible investment has a significant impact not only on the MTB ratio (Fama–French high minus low [HML] factor) but also on operating profitability (OP) (Fama–French robust minus weak [RMW] factor) when forecasting stock returns from 1993 to 2022. For intangible asset‐intensive firms, intangible investment is the main predictor of stock returns, rather than MTB ratio and profitability. Our evidence suggests that intangible investment has become an important factor in explaining stock returns over time, independent of other factors such as profitability and MTB ratio.

Suggested Citation

  • Lin Li, 2025. "The Role of Intangible Investment in Predicting Stock Returns: Six Decades of Evidence," Post-Print hal-05074264, HAL.
    • Handle: RePEc:hal:journl:hal-05074264
    DOI: 10.1111/fima.12505
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-05074264v1
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    Keywords

    Market-to-book ratio intangible investment profitability stock returns factor analysis; Market-to-book ratio; intangible investment; profitability; stock returns; factor analysis;
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