Using Patent Citation Indicators to Manage a Stock Portfolio

Abstract

This paper examines the relationship between indicators of technology quality and stock market performance. The purpose of this analysis is to demonstrate how quantitative R&D and technology indicators may be useful tools in the analysis of the stock market. Currently many stock market analysts do not include quantitative technology indicators in their evaluation of companies. The analysis presented in this paper shows how such indicators may be a useful addition to traditional methods of company valuation. The paper describes CHI’s technology value model, and presents the results of this model in terms of stock market returns. The results are divided into three sections, according to how often the model is updated. A comparison is made between portfolios updated on an annual, monthly, and weekly basis. The last of these portfolios is based on an actual investment made by CHI using part of its pension fund. The results of the analysis show that updating the model more often than annually improves its performance. This may be owed to the ability to adjust for price changes in stocks during each year.