R&D Intensity Growth Momentum
In plain terms
Companies spending heavily on R&D relative to their (often beaten-down) market value tend to be under-priced by the market and outperform over the following years. The signal buys when a firm's R&D-to-market-value jumps above its own 2-year baseline and holds for a quarter. Note: R&D relative to sales does not predict returns; scaling by market value is what carries the effect.
How it works
Chan-Lakonishok-Sougiannis 2001 find that R&D intensity per se (R&D/sales) does NOT predict returns; the predictive variable is R&D scaled by MARKET VALUE of equity. High R&D/MV firms, which tend to be beaten-down names with poor past returns, earn ~6.1% average annual excess returns over the following three years (a contrarian value effect, not price momentum). Implementation: rolling 8Q z-score of R&D / market value of equity (close at the filing's available_date x shares_outstanding, no look-ahead) fires LONG for one quarter per event; no trend confirmation, since a 60-day uptrend gate would select the opposite population from the paper's beaten-down winners.
Data dependencies
- Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
- Key metrics
A data feed this strategy reads, refreshed on its normal schedule.
Expected edge
- Reported return
- +6.12% average annual excess return (high R&D/MV portfolio, 3-year post-formation)
- Tested over
- 3-year post-formation; per-event hold 63d
Chan-Lakonishok-Sougiannis 2001: high R&D/MV portfolio earns ~6.1% average annual excess return over the 3 years post-formation; R&D/sales intensity alone is unpredictive.
Related families
Standard value factors mistake R&D-heavy tech firms as 'growth' because R&D is expensed not capitalized. Adding R&D back uncovers hidden value.
Companies with high gross profit / total assets keep beating peers — it's the cleanest measure of 'is this business actually good'.
Markets under-react when companies are granted high-value patents (measured by 3-day stock reaction at grant). Firms with valuable recent patents outperform by 3-5%/yr.
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