Mispricing and risk of R&D investment in European firms

Andi Duqi, Aziz Jaafar () and Giuseppe Torluccio

The European Journal of Finance, 2015, vol. 21, issue 5, 444-465

Abstract: We study whether R&D-intensive firms earn superior stock returns compared to matched size and book-to-market portfolios across several financial markets in Europe. Mispricing can arise if investors are not able to correctly estimate the long-term benefits of R&D investment or whether R&D firms are more risky than others. The results confirm that more innovative firms can earn future excess returns. Stocks listed on continental Europe markets and operating in high-tech sectors are more prone to undervaluation. This can be caused in the first case by information asymmetries that are more severe in bank-based countries. No evidence is found for a different risk pattern of R&D-intensive stocks.

Date: 2015
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DOI: 10.1080/1351847X.2013.838185

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