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Patent-to-Market Premium

46 Pages Posted: 28 Nov 2018

See all articles by Jiaping Qiu

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

Kevin Tseng

The Chinese University of Hong Kong (CUHK) - CUHK Business School; National Taiwan University - Department of Finance; National Taiwan University - Center for Research in Econometric Theory and Applications

Chao Zhang

Shanghai University of Finance and Economics

Date Written: November 16, 2018

Abstract

A firm’s patent-to-market (PTM) ratio refers to the percentage of a firm’s market value that is attributable to its patent market value. A hedging portfolio based on PTM ratio generates a monthly return of 71 basis points. The CAPM cannot be rejected for firms with low PTM ratios, but is rejected for firms with high PTM ratios. PTM ratio is a priced factor distinct from known factors in the cross-section of stock returns. PTM ratio is positively associated with future profitability. Our analysis suggests that real option is the channel through which PTM ratio predicts future stock returns.

Keywords: Patents, Real Option, Stock Returns, Operation Performance

JEL Classification: G11, G31, O34

Suggested Citation

Qiu, Jiaping and Tseng, Kevin and Zhang, Chao, Patent-to-Market Premium (November 16, 2018). Available at SSRN: https://ssrn.com/abstract=3285921 or http://dx.doi.org/10.2139/ssrn.3285921

Jiaping Qiu (Contact Author)

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

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Kevin Tseng

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Chao Zhang

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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