Universität zu Köln

Drechsler, Katharina ORCID: 0000-0003-3089-0748, Müller, Sebastian ORCID: 0000-0003-3690-4303 and Wagner, Heinz-Theo ORCID: 0000-0002-3464-9698 (2025). The “digital” premium: Why does digitalization drive stock returns? Journal of Economic Dynamics and Control, 181. pp. 1-22. Elsevier. ISSN 0165-1889

PDF 1-s2.0-S0165188925001836-main.pdf Bereitstellung unter der CC-Lizenz: Creative Commons Attribution. Download (1MB)

Abstract

[Artikel-Nr.: 105217] To explore whether the rise of digital innovation across firms might point to the existence of a new risk compensation in asset pricing, we construct a text-based measure of the socio-technical phenomenon of digitalization, called digital orientation, by using the MD&A section of annual firm reports from 1996 to 2020. We find that firms with a high digital orientation (digital leaders) are systematically different along several key characteristics like valuation, sales growth, and profitability, forming a peer group of digitally leading firms across traditional industry boundaries. A digital orientation strategy, which is long (short) stocks with high (low) digital orientation, earns an equally weighted (value-weighted) monthly six-factor alpha of 0.41 % (0.28 %) per month, both statistically significant at 5 %. These results are robust to various sensitivity checks, including alternative constructions of the digital orientation measure, controls for industry membership, changes to the sample dataset, and the use of an alternative dictionary. Additionally, the results remain comparable if we construct an alternative investment strategy based on the portfolio holdings of funds with a digital innovation focus.

Item Type:	Article
Creators:	Creators Email ORCID ORCID Put Code Drechsler, Katharina UNSPECIFIED https://orcid.org/0000-0003-3089-0748 UNSPECIFIED Müller, Sebastian UNSPECIFIED https://orcid.org/0000-0003-3690-4303 UNSPECIFIED Wagner, Heinz-Theo UNSPECIFIED https://orcid.org/0000-0002-3464-9698 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-812880
Identification Number:	10.1016/j.jedc.2025.105217
Journal or Publication Title:	Journal of Economic Dynamics and Control
Volume:	181
Page Range:	pp. 1-22
Number of Pages:	22
Date:	December 2025
Publisher:	Elsevier
ISSN:	0165-1889
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Weitere Institute, Arbeits- und Forschungsgruppen > Cologne Institute for Information Systems (CIIS)
Subjects:	General statistics Economics
Uncontrolled Keywords:	Keywords Language Digital orientation ; Asset pricing ; Market efficiency ; Textual analysis ; Digitalization ; Digital innovation English
['eprint_fieldname_oa_funders' not defined]:	Publikationsfonds UzK
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/81288