Technological links and predictable returns

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

26 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)76-96
Journal / PublicationJournal of Financial Economics
Volume132
Issue number3
Online published14 Nov 2018
Publication statusPublished - Jun 2019

Abstract

Employing a classic measure of technological closeness between firms, we show that the returns of technology-linked firms have strong predictive power for focal firm returns. A long-short strategy based on this effect yields monthly alpha of 117 basis points. This effect is distinct from industry momentum and is not easily attributable to risk-based explanations. It is more pronounced for focal firms that: (a) have a more intense and specific technology focus, (b) receive lower investor attention, and (c) are more difficult to arbitrage. Our results are broadly consistent with sluggish price adjustment to more nuanced technological news.

Research Area(s)

  • Technology momentum, Return predictability, Technological closeness, Limited attention, Market efficiency

Citation Format(s)

Technological links and predictable returns. / Lee, Charles M.C.; Sun, Stephen Teng; Wang, Rongfei; Zhang, Ran.

In: Journal of Financial Economics, Vol. 132, No. 3, 06.2019, p. 76-96.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review