Research and Development Factor Models

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Research and Development Factor Models

Matthew Roesener

posted Jan 28, 2016

Finance Theory Papers Research

Hi All,

I was wondering if anyone here has any insights in this space? I started modyfying an older notebook on ranking universes by factors. I decided to investigate a classic factor on increases (decreases) in research and development as a percentage of sales. There are a few papers I've come across and am trying to implement. The paper below highlights using revenue growth and a firms past performance in relation to RnD percentage as an indicator of future performance.

http://www.people.hbs.edu/lcohen/pdffiles/dimalco.pdf

Please take a look at the notebook attached. I first filter a universe by technology equities using the Morningstar classification symbols. I then extract RnD expenses and total revenue and calculate a ratio. I also extract revenue growth and created a new factor that takes the average or RnD to Total Revenue and Revenue Growth.

Interestingly enough RnD as a percentage of sales does not have a positive correlation in 30 day equity returns, but when I include revenue growth as another factor, there is a positive correlation.

Interested in anyones thoughts and critiques.

Thank you,

Matt

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In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.