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Abnormal research and development investments and stock returns

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  • Songur, Hilmi
  • Heavilin, Jason E.

Abstract

We investigate the relation between abnormal research and development (R&D) investments change and expected stock returns. We provide evidence that firms that abnormally increase their R&D investments (RDI) earn higher returns in comparison to the market portfolio. Specifically, our findings document an economically significant annual positive abnormal RDI returns that ranges from 3.2% to 11.5%. These findings are robust to well-established risk factors in the literature and suggest that the abnormal increases in RDI impacts stock returns.

Suggested Citation

  • Songur, Hilmi & Heavilin, Jason E., 2017. "Abnormal research and development investments and stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 237-249.
    • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:237-249
    DOI: 10.1016/j.najef.2017.07.010
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    R&D intensity; Stock returns;

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