Does Innovation Explain the Skewness of Stock Returns?

Authors

Ahmed Baig, Boise State University, Idaho, U.S.Follow
Hassan Anjum Butt, Missouri Southern State University, Missouri, U.S.Follow
Abrar Fitwi, Saint Mary's College, Notre Dame, Indiana, U.S.Follow
Joey Smith, College of William & Mary, Virginia, U.S.Follow

Abstract

This paper investigates the impact of firm-level innovation on the skewness of stock returns. Using data on a broad sample of equities from the major US stock exchanges, we find that innovative companies exhibit strong positive skewness. Our results are robust to both input and output measures of innovation as we find that increases in both firm-level research and development expenditure (R&D), as well as the number of patents, are positively associated with future stock return skewness. Our results hold using both systematic and idiosyncratic measures of skewness while controlling for various stock characteristics, time, and industry-fixed effects.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Recommended Citation

Baig, Ahmed; Butt, Hassan Anjum; Fitwi, Abrar; and Smith, Joey (2021) "Does Innovation Explain the Skewness of Stock Returns?," American Business Review: Vol. 24: No. 2, Article 2.
DOI: https://doi.org/10.37625/abr.24.2.12-31
Available at: https://digitalcommons.newhaven.edu/americanbusinessreview/vol24/iss2/2

DOI

https://doi.org/10.37625/abr.24.2.12-31