Is there a link between innovation and stock returns? And 3 small caps to watch …
According to a study conducted by University of Technology Sydney, the answer is a resounding yes when it comes to the link between stock returns and innovation.
Dr Anna Bedford, Dr Le Ma, Dr Nelson Ma and Kristina Vojvoda examined patent registrations from 1296 ASX-listed companies between 1997 and 2018.
They matched patent data with financial and market information, and found the most innovative firms experienced 1.95% higher yearly growth in profitability compared to non-innovative firms.
It also found that shareholders factored innovation into share price movements.
Researchers examined how company innovation is perceived and valued by investors, and whether investors are able to price in future gains from innovation.
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