Investment performance of Common stocks in relation to their PTR -For KOSPI and KOSDAQ common stocks, simulated stock investment

Abstract

It is widely understood that the Research and development (R&D) is an investment activity. And the output is an intangible asset that should be reflected in the observed market value of the firm. Bosworth, D. and Rogers, M suggested in their work that R&D and patent activity are positively and significantly associated with market value. Also, K.-C. Chang et al. (2012) showed patents are widely adopted in research concerning relationship between patent counts and corporation performance. In research regarding the relationship between patent performance and corporation performances, many scholars have confirmed the positive relation between patent citations and market value of firm. We suggest one another indicator PTR, which evaluates the firm's technology value. The technology value includes firm's patented R&D output and patents the firm possessed by purchase. Accordingly, low PTR means that the value of firm's R&D activity is not fully reflected in security prices and investing portfolios with low PTR stocks will result in high investment performance. In the simulation of long term investment, there was a size effect. The findings of this study confirmed the PTR portfolios outperform the PER portfolios. Therefore managers should consider PTR and technology value when they make investment decisions. Especially, firms between market value of 50 to 100 billion KRW should consider PTR. Due to the size effect, considering technology value is more proper for those firms.