Review of Quantitative Finance and Accounting

, Volume 48, Issue 2, pp 385–406 | Cite as

The R&D-abnormal return anomaly: a transaction cost explanation

  • Paul Brockman
  • Dennis Y. Chung
  • Kenneth W. Shaw
Original Research


Previous research finds a positive and significant relation between current increases in R&D expenditures and future abnormal stock returns. While the existence of this anomalous pattern is well-established, its underlying causes are the subject of much debate. Recent research also shows that transaction costs can lead to apparent market anomalies such as the post-earnings-announcement drift. We combine these two lines of research and posit that the positive relation between R&D increases and future abnormal stock returns is due to transaction costs. Consistent with this hypothesis, we find that abnormal returns on R&D-based, zero-net-investment portfolios disappear after incorporating standard measures of transaction costs. Overall, our results show that the R&D-abnormal return anomaly is more likely due to transaction costs than to the alternative hypotheses of market inefficiency or omitted risk factors.


R&D expenditures Earnings Transaction costs Liquidity 

JEL Classification

G12 G14 


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Paul Brockman
    • 1
  • Dennis Y. Chung
    • 2
  • Kenneth W. Shaw
    • 3
  1. 1.College of Business and EconomicsLehigh UniversityBethlehemUSA
  2. 2.Beedie School of BusinessSimon Fraser UniversityBurnabyCanada
  3. 3.School of Accountancy, Trulaske College of BusinessUniversity of MissouriColumbiaUSA

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