Technological Links and Predictable Returns

Charles Lee, Stephen Teng Sun, Rongfei Wang and Ran Zhang
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Stephen Teng Sun: Peking University
Rongfei Wang: Peking University
Ran Zhang: Peking University

Research Papers from Stanford University, Graduate School of Business

Abstract: This paper finds evidence of return predictability across technology-linked firms. Employing a classic measure of technological closeness between firms, we show that the returns of technology-linked firms have strong predictive power for focal firms' returns. A long-short strategy based on this effect yields monthly alpha of 117 basis points. This effect is distinct from industry momentum, and is more pronounced for more innovative firms, firms with higher investor inattention, and firms with higher costs of arbitrage. We find a similar lead-lag relation between the earnings surprises, analyst revisions, and innovation-related activities (such as patent and citation counts) of technology-linked firms. Our results are broadly consistent with sluggish price adjustment to more nuanced technological news.

JEL-codes: G10 G11 G14 O30 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-tid
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Citations: View citations in EconPapers (7)

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Journal Article: Technological links and predictable returns (2019)
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