Effects of unusual R&D expenditures on stock returns - evidences from the listed companies in Taiwan

This study examines the Research and Development (R&D) effect on stock returns. By modifying Kyle's (1985) model, we construct an asset pricing model and propose a related hypothesis to investigate the information-related content of unusual increases in R&D expenditures. The empirical evidence shows that R&D increases might not be beneficial investments and the information-related value of R&D increases is gradually incorporated in the stock price system. Therefore, we document that the stock market is informationally efficient in the semi-strong form.