Article ID Journal Published Year Pages File Type
5083090 International Review of Economics & Finance 2017 10 Pages PDF
Abstract

PurposeIn the era of the knowledge economy intangibles are recognized by investors as pivotal value drivers. This paper proposes an intangibles-based tool for picking companies with value growth potential.Design/methodology/approachWe suggest a model to select companies that effectively use unique intangibles (in contrast to the generic intangibles). To test whether these results can be explained by skill we implement a bootstrap procedure. Companies that are able to use unique intangibles efficiently are combined in a portfolio.FindingsOnly 22% of companies have the skills to use unique intangibles, but all of them are characterized by the efficiency of their use. The created portfolio demonstrates a higher cumulative return, Sharpe ratio and lower drawdown than S&P500. We also find the increasing importance of intangibles for investors during the crisis.Research limitations/implicationsBoth the created portfolio and the benchmark (S&P 500 index) are analyzed without transaction costs. Also the benchmark construction is based on equal-weighted sum of company M/B ratios.Originality/valueWe take into account the quality of intangibles (efficiency of unique intangibles use) while previous research of portfolio forming methods is based on quantity of intangibles.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,