Intangible Assets Aligned: In Search of Return Predictability

90 Pages Posted: 29 Sep 2020 Last revised: 12 Jun 2023

See all articles by Cunfei Liao

Cunfei Liao

Nanjing University of Science and Technology - School of Economics and Management

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Fujing Jin

Beijing Jiaotong University, School of Economics and Management

Guohao Tang

Hunan University - College of Finance and Statistics

Date Written: March 10, 2020

Abstract

In this paper, we propose a comprehensive intangible assets-related measure, I-SCORE, for the purpose of explaining the cross-sectional returns in the U.S. stock market. We apply the partial least squares approach to construct I-SCORE from 10 firm characteristics. The results show that the firms receiving the high I-SCORE generate substantially higher future returns than those with the low I-SCORE. The predictability of I-SCORE is robust after controlling for innovation- and R&D related factors, along with some famous asset pricing factors. We also find that I-SCORE is positively related to future earnings, intangible investments, and expected profitability. In addition, the positive relation between I-SCORE and future returns is stronger for the firms with higher financial constraints. Besides, investor attention helps dissect the premium generated by I-SCORE, which cannot be explained by the sentiment- and analyst forecast error-driven mispricing, however.

Keywords: Intangible assets, I-SCORE, Partial least squares, Risk-based theory, Sentiment

JEL Classification: G12, G14

Suggested Citation

Liao, Cunfei and Jiang, Fuwei and Jin, Fujing and Tang, Guohao, Intangible Assets Aligned: In Search of Return Predictability (March 10, 2020). Available at SSRN: https://ssrn.com/abstract=3692106 or http://dx.doi.org/10.2139/ssrn.3692106

Cunfei Liao

Nanjing University of Science and Technology - School of Economics and Management ( email )

No.200 Xiao Lingwei Street
Nanjing, Jiangsu 210094
China

Fuwei Jiang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Fujing Jin

Beijing Jiaotong University, School of Economics and Management ( email )

China

Guohao Tang (Contact Author)

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410006
China

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