Innovation Awards, Product Segmentation, and Stock Returns

88 Pages Posted: 16 Jan 2018 Last revised: 6 Aug 2019

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Yiming Yang

The University of Hong Kong

Tong Zhou

ShanghaiTech University

Date Written: August 3, 2019

Abstract

Firms winning the R&D 100 Award, a prestigious award for technology breakthroughs in product inventions, provide significantly higher subsequent stock returns. We hypothesize that such return predictability stems from the awarded firms’ access to high-end markets in segmented markets. We develop a model to formalize this hypothesis and find empirical support for its implications as follows: (1) awarded firms are associated with lower product similarity and higher profitability; (2) awarded firms present significantly higher procyclicality and market betas; and (3) the award-return relation is more pronounced in periods of higher aggregate consumption growth and among firms with higher R&D investments.

Keywords: Innovative Product Award, Stock Returns, Product Segmentation, Procyclicality, Consumption Risks, Growth Opportunities

JEL Classification: E23, G12, L22, O31

Suggested Citation

Hsu, Po-Hsuan and Yang, Yiming and Zhou, Tong, Innovation Awards, Product Segmentation, and Stock Returns (August 3, 2019). Available at SSRN: https://ssrn.com/abstract=3102847 or http://dx.doi.org/10.2139/ssrn.3102847

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Yiming Yang (Contact Author)

The University of Hong Kong

K. K. Leung Building, Pokfulam Road
Hong Kong

Tong Zhou

ShanghaiTech University ( email )

393 Middle Huaxia Road, Pudong
Shanghai, Shanghai 201210
China

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