Research Interests
Innovation economics, house price dynamics, behavioral finance
Publications
Journal of Accounting and Economics, 2022, 74 (1), 101492
We find that small innovators (small firms with recent patent grants) earn higher future returns than small non-innovators. These returns are driven by risk, not underreaction due to information processing costs. Small innovators are riskier because of their reliance on external funding and strategic alliances.
Journal of Financial and Quantitative Analysis, 2022, 57 (8), 2899-2928
I construct a new proxy for Tobin's Q that incorporates the replacement cost of patent capital. This proxy, which I call patent Q, explains up to 31% more variation in investment than the standard proxy for Q and up to 62% more variation in investment than total Q of Peters and Taylor (2017). Controlling for patent Q leads to larger, not smaller, cash flow coefficients.
Working Papers
We use patent thickets to study how patent-right uncertainty impacts target selection in mergers and acquisitions. This uncertainty can create additional costs that disrupt technological synergies. We find that firms are less likely to be acquired when their patents are in thickets that exacerbate these costs. Conversely, firms are more likely to be acquired when their patents create thickets that mitigate these costs. These relations strengthen with the extent to which acquirers and potential targets overlap technologically, which reduces information asymmetry and increases the value of potential synergies. We also find that when a firm occupies the same thicket as the acquirer, acquisition probability depends on each firm's ability to impose costs on the other. Overall, we conclude that patent-right uncertainty is an important determinant of target selection in mergers and acquisitions.
Using survey data, we show that investor expectations of short-horizon aggregate returns are extrapolative and are negatively related to future short-horizon aggregate returns. To assess the role of extrapolative expectations in short-horizon return predictability at both the aggregate and firm levels, we develop a proxy for the extrapolative component of expectations. Our extrapolation proxy, which can be calculated for all firms and time periods, has significant short-horizon return predictive power at both the aggregate and firm levels. Overall, our results support extrapolation-based theories and suggest that short-horizon return predictability is better understood when considering the possibility of short-horizon return extrapolation.
We find that house price momentum, defined as positive autocorrelation in aggregate house price changes, is stronger and house price change volatility is weaker when and where mortgage default risk at origination is higher. These facts appear widely, both geographically and temporally, and are difficult to reconcile with existing theories of house price dynamics. To explain these facts, we introduce a model in which lenders use valuations that incorporate information relatively slowly. In equilibrium, prices reflect the valuations used by lenders most when default risk is highest. Our model jointly explains the observed relations between default risk, momentum, and volatility.