New Technology Exposure and Stock Returns

Do stocks with high exposures to new technologies outperform? In her December 2022 paper entitled “New Technologies and Stock Returns”, Jinyoung Kim examines future returns of stocks with relatively high exposures to new technologies as measured via patent analysis. Each June, she applies machine learning to both textual and citation information to detect technology areas with high growth in new patents and identifies new technologies based on the invention descriptions. For each U.S. public company, she then estimates the intensity of firm exposure to the last three years of new technologies. Excluding firms with zero exposure, she relates new technologies exposure to stock returns by each June reforming a portfolio that is long (short) stocks with the lowest (highest) 30% of new technologies exposures. Using information for all publicized U.S. patents and patent applications since 1976 (plus information for related pre-1976 granted U.S. patents and published international patents) and monthly returns for associated stocks and widely accepted stock factors during July 1981 through June 2019, she finds that: