Research & Development And Volatility Of Equity Returns In The French Market

This paper examines the link between research and development (R&D) and idiosyncratic volatility for a panel of large French quoted companies. We investigate whether the intensity of R&D investment makes the firm’s stocks riskier. We suggest that R&D activities generate information asymmetry and uncertainty about the firm’s future cash flows and make its idiosyncratic volatility higher. Our results show that R&D investment intensity should be considered as a determinant of the idiosyncratic volatility and that R&D increases the riskiness of the firm.