The Effects of the Intensity of Firm’s Intangible Assets on the Volatility of Their Stock Prices

Abstract

The volatility of share prices is an important variable in most asset pricing models and option pricing formulas. Valuations of volatility of share prices have become a major challenge with the development of the knowledge-driven economy as evidence suggest that not all elements of company wealth are physical in nature. The purpose of this paper is to check if the intensity of intangible assets in a firm’s balance sheet affects the volatility of their stock price. A brief overview of intangible assets is also included in this study. An OLS regression was run and the results of the entire data set gives a negative correlation between intensity of intangible assets and volatility of stock prices probably due to the fact that the volatility of the firm share prices are driven by uncertainty and expectation of future growth. An industry-grouping regression was carried out, the results  shows that for basic pharmaceuticals there is a positive correlation between the intensity of intangible assets and their price volatility while the other three industry groups produce a negative correlation. The study relies on secondary data of randomly selected forty (40) publicly traded companies in Ghana from four different industry groupings namely: manufacture of basic pharmaceuticals, manufacture of food products and beverages, information technology and manufacture of basic metals.

Keywords: Ghana, intangible assets, volatility, stock prices