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Academic audit

Provisionalequity XS fundamental

R&D Expenditures and Stock Returns

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
free
clean panel
Gate 2
Placebo ≥ P95
P100
outranked ~200 of 200 baskets
Gate 3
Cost-aware net
RF +1.41
positive net, certified
Provisional
Worst 12-month leg (RF)-0.97
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Clears the gates but stays provisional — too year-concentrated or rebalance-fragile to certify.

This is a cross-sectional equity factor that ranks companies by their research-and-development intensity and goes long the R&D-heavy names against the R&D-light ones. The underlying paper studies how the stock market values R&D spending.

What we found

The R&D-intensity long/short passes our survivorship-free placebo test, which indicates real rank-skill rather than a data artifact. But it is fragile: our own runner grades it as a sleeve-only leg, not a validated one, because it is the most crash-prone item we tested, with a losing worst year (worst-year RF -0.97). The positive result also depends on the exact rebalance cadence - a monthly-grid variant turns net-negative - and the P&L is recency-concentrated, with the single most recent window contributing roughly 39%. Real, but too fragile to headline; provisional, and at most a diversifying building block rather than a standalone strategy.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship free
  • Data: survivorship-free 1077-name US common-stock panel, 2005-2026. Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Chan, Lakonishok & Sougiannis (2001), "The Stock Market Valuation of Research and Development Expenditures", J. Finance
Read the paper ↗
← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.