The Design Of Investment Strategy Based On The Technological Links And Predictable Returns

In the age of technological innovation,a company's technological innovation capability has become an important factor that determines not only its profitability but also sustainable management.The world's technology giants,such as Google,Alibaba,Huawei,Tesla and other companies,may have very different industries and products,but they are inextricably linked at the technological level.These technological correlations transcend traditional industry boundaries,but are often not easily discernible from a company's financial reports.Companies usually do not conduct technology research in isolation.Instead,they interact with each other,resulting in spillover effects.On the one hand,companies with similar technologies may use similar raw materials in the production process.On the other hand,they may share the research and development achievements in the technical field because of the spillover effect of knowledge.In addition,due to investors' limited attention to various types of information and deviations in information processing capabilities,the market is not completely efficient,and the stock market's response to some information is lagging.Therefore,by looking for these companies with technological links,we can use the correlation and the lead-lag pattern of their stock price changes to obtain excess returns by designing corresponding quantitative investment strategies.The technological links transcend traditional industry boundaries and are often difficult to acquire in financial reports.However,companies' patent information is the most direct reflection of their technological innovation.Therefore,we aim to seek for companies that are technologically linked by employing a classic measure of technological closeness between them from the perspective of the patent data,and then to study the correlation of their stock returns.We find the evidence that technologylinked companies do have a lead-lag relation in stock returns.Basing on these results,we try to establish investment strategies to obtain excess returns.In the empirical research section,we select all A-share listed companies from July 2014 to June 2019 as the research object,and use the Fama-Macbeth cross-section regression model to test the impact of technology-linked return factors on future stock returns.The results show that,China's stock market does have "technology momentum" effect.The returns of technology-linked companies have significant power to predict focal companies' future stock returns.This effect is more pronounced for companies with high levels of technological innovation.Using this "technology momentum" effect between companies,stock investment strategies were established and backtested.The results show that a long strategy based on the technology-linked return factor can achieve annualized excess return of 10.23%.After adding the technological innovation indicator,the investment strategy can obtain annualized excess return of 13.82%.In recent years,technological innovation companies in stock market have become more and more sought after by investors.The research on the effect of "technology momentum" has great significance in both the asset pricing field and the quantitative investment field.