The R&D-abnormal return anomaly: a transaction cost explanation

The R&D-abnormal return anomaly: a transaction cost explanation Previous research finds a positive and significant relation between current increases in R&D expenditures and future abnormal stock returns. While the existence of this anomalous pattern is well-established, its underlying causes are the subject of much debate. Recent research also shows that transaction costs can lead to apparent market anomalies such as the post-earnings-announcement drift. We combine these two lines of research and posit that the positive relation between R&D increases and future abnormal stock returns is due to transaction costs. Consistent with this hypothesis, we find that abnormal returns on R&D-based, zero-net-investment portfolios disappear after incorporating standard measures of transaction costs. Overall, our results show that the R&D-abnormal return anomaly is more likely due to transaction costs than to the alternative hypotheses of market inefficiency or omitted risk factors. Review of Quantitative Finance and Accounting Springer Journals

The R&D-abnormal return anomaly: a transaction cost explanation

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Springer US
Copyright © 2016 by Springer Science+Business Media New York
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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