Do firms that spend big on research and development (R&D) relative to revenue outperform in the future? In his January 2026 paper entitled "R&D Alpha: Investment Intensity and Long-Term Stock Returns", flagged by a subscriber, Abhishek Sehgal investigates the relationship between firm R&D intensity and future returns for large-capitalization U.S. stocks (S&P 500, as historically added). Specifically, he each year:
- Sorts S&P 500 stocks into fifths (quintiles) by end-of-fiscal year (usually December) R&D intensity.
- Computes equal-weighted average annual (end of the following June) returns by quintile, and returns for a hedge portfolio that is long the highest and short the lowest quintile.
- Computes annual (end of June) returns for a simple long-only portfolio that holds the equal-weighted top 20 stocks by R&D intensity, including 0.027% baseline trading frictions.
Using monthly data for July 1995 through June 2025, he finds that:
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