Does innovation explain the skewness of stock returns?

Ahmed S. Baig, Hassan Butt, Abrar Fitwi, Joey Smith

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)12-31
Number of pages20
JournalAmerican Business Review
Volume24
Issue number2
DOIs
StatePublished - Nov 2021

Keywords

  • Innovation
  • Patents
  • R&D
  • Skewness

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