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Patent Thickets, Stock Returns, and Conditional CAPM

Author

Listed:
  • Po-Hsuan Hsu

    (College of Technology Management, National Tsing Hua University, Hsinchu City 300, Taiwan)

  • Hsiao-Hui Lee

    (Department of Management Information Systems, College of Commerce, National Chengchi University, Taipei 116, Taiwan)

  • Tong Zhou

    (School of Entrepreneurship and Management, ShanghaiTech University, Shanghai 201210, China)

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 Capital Asset Pricing Model (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.

Suggested Citation

  • Po-Hsuan Hsu & Hsiao-Hui Lee & Tong Zhou, 2022. "Patent Thickets, Stock Returns, and Conditional CAPM," Management Science, INFORMS, vol. 68(11), pages 8343-8367, November.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:11:p:8343-8367
    DOI: 10.1287/mnsc.2021.4229
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