Patent Thickets, Stock Returns, and Conditional CAPM

77 Pages Posted: 28 Jul 2015 Last revised: 27 Sep 2021

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems

Tong Zhou

ShanghaiTech University - School of Entrepreneurship and Management

Date Written: September 25, 2021

Abstract

Patent thickets, a phenomenon of fragmented ownership of overlapping patent rights, hamper firms’ commercialization of patents and thus deliver asset pricing implications. We show that firms with deeper patent thickets are involved in more patent litigations, launch fewer new products, and become less profitable in the future. These firms are also associated with lower subsequent stock returns, which can be explained by a conditional CAPM based on a general equilibrium model that features heterogeneous market betas conditional on time-varying aggregate productivity. This explanation is supported by further evidence from factor regressions and stochastic discount factor tests.

Keywords: Patent Thickets, Growth Options, Commercialization Costs, Conditional CAPM, Stock Returns

JEL Classification: E23, G12, O31, O33

Suggested Citation

Hsu, Po-Hsuan and Lee, Hsiao-Hui and Zhou, Tong, Patent Thickets, Stock Returns, and Conditional CAPM (September 25, 2021). Available at SSRN: https://ssrn.com/abstract=2636725 or http://dx.doi.org/10.2139/ssrn.2636725

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems ( email )

No. 64, Section 2, Zhǐnán Rd
Wenshan District
Taipei City
Taiwan

Tong Zhou

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

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