Patent Thickets, Stock Returns, and Conditional CAPM
81 Pages Posted: 28 Jul 2015 Last revised: 30 Nov 2020
Date Written: November 30, 2020
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 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.
Keywords: Patent Thickets, Growth Options, Commercialization Costs, Conditional CAPM, Stock Returns
JEL Classification: E23, G12, O31, O33
Suggested Citation: Suggested Citation