Does Innovation Explain the Skewness of Stock Returns?

Ahmed Baig, Hassan Anjum Butt (), Abrar Fitwi and Joey Smith
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Ahmed Baig: Boise State University, Idaho, U.S.
Hassan Anjum Butt: Missouri Southern State University, Missouri, U.S.
Abrar Fitwi: Saint Mary's College, Notre Dame, Indiana, U.S.
Joey Smith: College of William & Mary, Virginia, U.S.

American Business Review, 2021, vol. 24, issue 2, 12-31

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.

Keywords: R&D; Skewness; Innovation; Patents (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2021
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