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Stock Price Volatility and Patent Citation Dynamics: the case of the pharmaceutical industry


  • Mariana Mazzucato

    (Department of Economics, Faculty of Social Sciences, The Open University)

  • Massimiliano Tancioni


Recent finance literature highlights the role of technological change in increasing firm specific and aggregate stock price volatility (Campbell et al. 2001, Shiller 2000, Pastor and Veronesi 2006). Yet innovation data is not used in these analyses, leaving the direct relationship between innovation and volatility untested. Our aim is to investigate more closely the relationship between stock price volatility and innovation using firm level patent citation data. The analysis builds on the empirical work by Mazzucato (2002; 2003) where it is found that stock price volatility is highest during periods in the industry life-cycle when innovation (measured at the industry level) is the most 'competencedestroying'. Here 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. We focus the analysis on firms in the pharmaceutical and biotechnology industries between 1974 and 1999. Results suggest that there is a positive and significant relationship between idiosyncratic risk, R&D intensity and the various patent related measures. Preliminary support is also found for the 'rational bubble' hypothesis linking both the level and volatility of stock prices to innovation.

Suggested Citation

  • Mariana Mazzucato & Massimiliano Tancioni, 2006. "Stock Price Volatility and Patent Citation Dynamics: the case of the pharmaceutical industry," Open Discussion Papers in Economics 55, The Open University, Faculty of Social Sciences, Department of Economics, revised Sep 2007.
  • Handle: RePEc:opn:wpaper:55

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    References listed on IDEAS

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    More about this item


    Idiosyncratic Risk; Volatility; Technological Change; Industry Life-Cycle;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General


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