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

Lin Li ()
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Lin Li: Audencia Business School

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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.

Keywords: Market-to-book ratio intangible investment profitability stock returns factor analysis; Market-to-book ratio; intangible investment; profitability; stock returns; factor analysis (search for similar items in EconPapers)
Date: 2025-05-19
New Economics Papers: this item is included in nep-fdg, nep-fmk and nep-for
Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-05074264v1
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Published in Financial Management, 2025, ⟨10.1111/fima.12505⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05074264

DOI: 10.1111/fima.12505

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