Technology and Return Predictability

43 Pages Posted: 23 Oct 2017 Last revised: 21 Mar 2018

See all articles by Jiaping Qiu

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

Jin Wang

Wilfrid Laurier University - Lazaridis School of Business & Economics

Yi Zhou

San Francisco State University

Date Written: March 12, 2018

Abstract

This paper finds significant predictability in stock returns across technology-linked firms. Using patent-holding information to identify firms’ technological linkage, we show that a long–short equity trading strategy sorted on lagged returns of technology-linked firms yields monthly alphas of around 105 basis points. The findings are robust to a number of specifications and are not driven by industry predictability, customer-supplier relationships, and strategic alliances. We provide supportive evidence that investors’ limited attention to technological linkages contributes to the return predictability across technology-linked firms. Our study uncovers technological relatedness as an important information linkage between firms.

Keywords: Technological Linkage, Stock Return Predictability, Limited Attention

JEL Classification: G11, G12, G14

Suggested Citation

Qiu, Jiaping and Wang, Jin and Zhou, Yi, Technology and Return Predictability (March 12, 2018). Available at SSRN: https://ssrn.com/abstract=3056433 or http://dx.doi.org/10.2139/ssrn.3056433

Jiaping Qiu (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Jin Wang

Wilfrid Laurier University - Lazaridis School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

Yi Zhou

San Francisco State University ( email )

College of Business
1600 Holloway Avenue
San Francisco, CA 94132
United States
(415) 338-2661 (Phone)
(415) 338-0596 (Fax)

HOME PAGE: http://https://cob.sfsu.edu/directory/yi-zhou

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