Technological proximity and co-movements of stock returns

The objective of this study is to validate two measures of technological proximity constructed from patent statistics, namely, knowledge spillovers and research overlap, by examining their relationship with the co-movements of stock returns. A unique data set is compiled from the US patent statistics by tracing the links between patents as established by backward citations. The empirical findings from this study suggest that the two measures of technological proximity are positively related to the co-movements of stock returns.