Patent, a legal representation of innovation achievement, is strongly meaningful for almost every countryâ??s economic growth and\ntechnology development. China, the worldâ??s no. 2 stock market, is the worldâ??s largest patent application country. In this study, we\nobserved 2,197 China-listed companies of Renminbi (RMB) common stocks (A-shares) from 2016 to 2018. The relationship\namong 570 valid patent indicators and financial indicators of the stock price, Return-on-Assets (ROA), and Return-on-Equity\n(ROE) was examined. We constructed patent leading indicators, patent kernel indicators, and patent prediction equations for\npredicting the stock price, ROA, and ROE using the Granger causality test and the dynamic time series forecast model. The stock\nperformance of investment portfolios based on patent prediction equations was thoroughly discussed. We found that investment\nportfolios constructed by the higher predictive ROA, the higher predictive ROE, and the higher predictive stock price growth rate\nhave better performance than the A-sharesâ?? average. The underlying concept behind this study is that despite the overall economic\nenvironment fluctuation and the China-US trade conflict, the patent-based algorithm proposed was proved to be useful to\ndiscover good investment portfolios.
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