The return predictability of technological links: evidence from the Chinese STAR Market

This paper examines the predictive power of technology-linked returns in the Chinese Science and Technology Innovation Market (STAR Market). Using a sample from August 2019 to June 2023, we construct technology-linked returns based on patent portfolio similarities among firms. Our findings indicate that these returns significantly predict future stock returns, with a long-short strategy yielding weekly excess returns between 0.50% and 0.53%. Analysis of trade sizes reveals that institutional investors are more likely to drive this predictability, as the direction of large trades aligns with technology-linked returns. This study explores how technology-peer information affects stock returns in an emerging, technology-intensive market, highlighting the significant role of traders with large capital in leveraging technology-peer information.