Size and value effects in high-tech industries: The role of R&D investment |
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| Institution: | 1. Accounting School, Zhejiang University of Finance and Economics, 18 Xueyuan Road, Hangzhou, 310018, China;2. Nottingham University Business School China, University of Nottingham Ningbo, 199 Taikang East Road, Ningbo 315100, China;3. College of Business Administration, University of Missouri-St. Louis, One University Blvd., St. Louis, MO 63121, USA;1. Department of Management Sciences, COMSATS University Islamabad, Attock Campus, Pakistan;2. Rennes School of Business, Rennes City, Brittany, France;3. Schulich School of Business, York University, Toronto, Canada;4. Department of Economics, Pusan National University, Busan, Republic of Korea;1. Department of Banking and Finance, Cheng Shiu University, Kaohsiung, Taiwan, ROC;2. Department of Finance, National Kaohsiung University of Science and Technology, Kaohsiung, Taiwan, ROC;3. Sales department, Paralink Networks, Inc., New Taipei City, Taiwan, ROC;1. Département des sciences administratives, Université du Québec (Outaouais), Campus St. Jérôme, 5 rue St Joseph, St Jérôme, Québec J7Z 0B7, Canada;2. Université du Québec (Montréal), École des sciences de la gestion, 315 Ste.-Catherine est, R-2915, Montréal, Québec H2X 3X2, Canada;3. Chaire d’information financière et organisationnelle (Université du Québec à Montréal), and Université du Québec en Outaouais, Canada;1. Department of Economics, Shanghai Lixin University of Accounting and Finance, No. 2800 Wenxiang Road, Song Jiang District, Shanghai 201620, China;2. Centre for Research on the Economy and the Workplace (CREW), Birmingham Business School, University House, Edgbaston Park Road, Birmingham B15 2TY, UK;3. USC Business School, University of the Sunshine Coast, Maroochydore DC, QLD 4558, Australia;4. School of International Economics & Trade, Shanghai Lixin University of Accounting and Finance, Pudong New Area, Shanghai 201209, China;5. School of Business Administration, Shanghai Lixin University of Accounting and Finance, No. 995 Shangchuan Road, Shanghai 201209, China |
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| Abstract: | We use monthly US stock data over 55 years from 1962 to 2017 to show that the R&D intensity at firms adds another important dimension to the size and value effects in describing stock returns, especially for small high-tech firms. A trading strategy that double sorts on R&D intensity and size or book-to-market ratio outperforms a simple small-minus-big (SMB) or high-minus-low (HML) strategy in producing higher and more significant portfolio returns. The most profitable schemes involve triple sorts by size, BM, and R&D intensity: the payoffs of buying high-BM/R&D-Active portfolio and selling low-BM/R&D-Inactive portfolio in the small-size/high-tech group and that of buying high-tech/high-BM and selling low-tech/low-BM in the small-size/R&D-active group generate a return of more than 2% on a monthly basis. Our results are robust to alternative classification method of assigning stocks in portfolios. |
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| Keywords: | R&D intensity Risk and return High-tech industry Portfolio construction |
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