How Do Investors Trade R&D-intensive Stocks? Evidence from Hedge Funds and Other Institutional Investors

73 Pages Posted: 29 Sep 2020 Last revised: 11 Oct 2021

See all articles by Dallin Alldredge

Dallin Alldredge

Florida International University

Mustafa Onur Caglayan

Florida International University

Umut Celiker

Cleveland State University - Monte Ahuja College of Business

Date Written: October 8, 2021

Abstract

We examine how institutional investors trade stocks with high research and development (R&D) expenses and investigate whether they can detect value-relevant R&D. We document significant differences between hedge funds and other institutional investors in their trading in high R&D stocks. We find that hedge funds (other institutional investors) invest more (less) in high R&D stocks compared to all other stocks. Moreover, hedge funds exhibit strong stock-picking ability in high R&D stocks, and hedge funds with larger allocations to high R&D stocks generate higher future fund returns. Our findings suggest that hedge funds have superior skill in identifying value-relevant R&D.

Keywords: research and development (R&D), institutional trading, hedge funds

JEL Classification: G10, G11, C13

Suggested Citation

Alldredge, Dallin and Caglayan, Mustafa Onur and Celiker, Umut, How Do Investors Trade R&D-intensive Stocks? Evidence from Hedge Funds and Other Institutional Investors (October 8, 2021). Available at SSRN: https://ssrn.com/abstract=3699806 or http://dx.doi.org/10.2139/ssrn.3699806

Dallin Alldredge

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Mustafa Onur Caglayan (Contact Author)

Florida International University ( email )

College of Business
11200 S.W. 8th St, Ryder Building 223B
Miami, FL 33199
United States
(305) 348-8430 (Phone)

HOME PAGE: http://https://business.fiu.edu/faculty/expert-guides.cfm?FlagDirectory=Display&EMP=caglayanm

Umut Celiker

Cleveland State University - Monte Ahuja College of Business ( email )

1860 E 18th St #420
Cleveland, OH 44114
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
72
Abstract Views
397
rank
406,766
PlumX Metrics