Abstract

http://ssrn.com/abstract=1799675
 
 

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Innovative Efficiency and Stock Returns


David A. Hirshleifer


University of California, Irvine - Paul Merage School of Business

Po-Hsuan Hsu


University of Hong Kong

Dongmei Li



February 22, 2012

AFA 2012 Chicago Meetings Paper

Abstract:     
We find that innovative efficiency (IE), patents or citations scaled by R&D, is a strong positive predictor of future returns after controlling for firm characteristics and risk. The IE-return relation is associated with the loading on a mispricing factor, and the high Sharpe ratio of the Efficient Minus Inefficient (EMI) portfolio suggests that mispricing plays an important role. Further tests based upon attention and uncertainty proxies suggest that limited attention contributes to the effect. The high weight of the EMI portfolio return in the tangency portfolio suggests that IE captures incremental pricing effects relative to well-known factors.

Number of Pages in PDF File: 62

Keywords: innovative efficiency, limited attention

JEL Classification: G12, G14, O3

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Date posted: April 4, 2011 ; Last revised: February 22, 2012

Suggested Citation

Hirshleifer, David A. and Hsu, Po-Hsuan and Li, Dongmei, Innovative Efficiency and Stock Returns (February 22, 2012). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1799675 or http://dx.doi.org/10.2139/ssrn.1799675

Contact Information

David A. Hirshleifer
University of California, Irvine - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
Po-Hsuan Hsu
University of Hong Kong ( email )
Pokfulam Road
Hong Kong
China
No contact information is available for Dongmei Li
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