R&D, risks and overreaction in a market with the absence of the book-to-market effect

Weifeng Hung, Chaoshin Chiao, Tung Liang Liao and Sheng-Tang Huang

International Review of Economics & Finance, 2012, vol. 22, issue 1, 11-24

Abstract: Prior studies document that the book-to-market (BM) effect is absent in the Taiwan stock market. Using Taiwanese data covering from 1991 to 2006, we show that, after controlling for the size effect and the Fama and French's (1993) risk factors, the BM effect only exists for those firms with low R&D intensity essentially because these stocks suffer less from investors’ underreaction to R&D investment. The BM effect arises primarily from fundamental reversals acting as a proxy for investors’ overreaction.

Keywords: Book-to-market; R&D; Overreaction (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:22:y:2012:i:1:p:11-24

DOI: 10.1016/j.iref.2011.08.006

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