The Impact of R&D Expenditure Intensity on Stock Return Volatility

Research and Development (R&D) investments can lead to robust stock returns in many instances. Investments in R&D create significant information asymmetry between the firm and the general public, which can lead to volatile trading activity as a result of the uncertainty stemming from the R&D investments. The uncertainty is a result of information asymmetry about what the investment us allocated towards and if such an investment will generate profits in the future. This study seeks to find the relationship between R&D investments and stock return volatility in the United States through a multiple regression model. The results of the regression analysis show that there is in fact a positive yet weak relationship between R&D investments and stock return volatility. This result has many implications for firms and their shareholders. The results of this analysis will help investors better understand the impact that R&D investments have on their investment decisions