Mispricing of research and development investments in a rapidly emerging and electronics-dominated market

Chaoshin Chiao, Weifeng Hung, Cheng F. Lee

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

This paper documents prevailing mispricing of research and development (R&D) investments in the Taiwan stock market, a rapidly emerging and electronics-dominated market. Applying stock return data from July 1988 to June 2005, we observe that R&Dintensive stocks tend to outperform stocks with little or no R&D. The R&D-intensity effect cannot be attributed fully to firm size and seasonal effects. The R&D-associated anomaly not only exists but also persists for up to three years. The market apparently undervalues R&D-intensive firms and overvalues non-R&D-intensive firms. Finally, the R&D anomaly is clearer for firms in the electronics industry after 1996.

Original languageEnglish (US)
Pages (from-to)95-116
Number of pages22
JournalEmerging Markets Finance and Trade
Volume44
Issue number1
DOIs
StatePublished - Jan 2008

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Keywords

  • Mispricing
  • R&D intensity
  • Stock returns

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