Innovation and Volatility: U.S. Evidence

Innovation and Volatility: U.S. Evidence
IMG - Innovation and Volatility: U.S. Evidence

Firms engaging in innovative practices have their patents to prevent competitive forces from eroding the resulted economic rents, however, there is limited evidence about the impact of innovation on risk. In this paper, we empirically examine the impact of innovation on idiosyncratic volatility. In doing so, we shed a new light on how firms involved in innovation activities will impact their volatility, in particular the idiosyncratic volatility. To do so, we empirically examine the impact of innovation, measured by patents weighted by citations and R&D expenditures on the idiosyncratic volatility of firms. Using a large sample of US firms, 8,256 firms, we find that more innovation is associated with lower idiosyncratic volatility. We also find that information uncertainty is the channel through which innovation affects idiosyncratic risk. The results are robust for different measures of idiosyncratic volatility. These results have empirical implications for investors, managers, and firms engaging in innovation related activities.

Naji Al-Shammasi

Dr. Naji Al-Shammasi



Dr. Naji Mohammad Al-Shammasi, the Chairman of the Department of Accounting and Finance, is an Assistant Professor of Finance. He graduated with a PhD in Finance and a minor in Econometrics from the University of North Texas (UNT) in 2015. Dr. Naji also holds a Master of Science in Finance from UNT. He also holds a Bachelor of Science in Finance with honors from KFUPM Business School (KBS). His research interests include: corporate Finance and its capital market implications, asset pricing, and market Efficiency. He has been involved in research and consulting with government organization and private companies. He serves as an advisor for the Capital Market Authority (CMA) from 2019. Before he pursued his academic career, he worked as a financial analyst and a portfolio manager at the Saudi Investment Bank. He managed mutual funds and discretionary portfolios with assets under management of SR 3 billion. In 2006 he was awarded the Lipper Funds Award for the best fund performance in Saudi Arabia.

Thursday - March 31, 2022
12:30 PM - 1:30 PM (KSA Time GMT+3)
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