Mispricing of Research and Development Investments in a Rapidly Emerging and Electronics-Dominated Market

Chaoshin Chiao, Weifeng Hung and Cheng F. Lee

Emerging Markets Finance and Trade, 2008, vol. 44, issue 1, 95-116

Abstract: This paper documents prevailing mispricing of research and development (R&D) investments in the Taiwan stock market, a rapidly emerging and electronics-dominated market. Applying stock return data from July 1988 to June 2005, we observe that R&D-intensive stocks tend to outperform stocks with little or no R&D. The R&D-intensity effect cannot be attributed fully to firm size and seasonal effects. The R&D-associated anomaly not only exists but also persists for up to three years. The market apparently undervalues R&D-intensive firms and overvalues non-R&D-intensive firms. Finally, the R&D anomaly is clearer for firms in the electronics industry after 1996.

Keywords: mispricing; R&D intensity; stock returns (search for similar items in EconPapers)
Date: 2008
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