We find that innovative efficiency (IE), patents or citations scaled by R&D, is a strong positive predictor of future returns after controlling for firm characteristics and risk. The IE-return relation is associated with the loading on a mispricing factor, and the high Sharpe ratio of the...

We propose that innovative originality is a valuable organizational resource, and that owing to limited investor attention and skepticism of complexity, greater innovative originality may be undervalued. We find that firms' innovative originality strongly predicts higher, more persistent, and...