Industry concentration, stock returns and asset pricing: The UK evidence

Sulaiman Mouselli, Aziz Jaafar, David McMillan
2019 Cogent Economics & Finance  
How does competition in firms' product markets influence stock returns? We examine this question using firms domiciled in the UK. We find that firms in less concentrated industries earn higher returns, even after controlling for the wellknown determinants of the cross-section of UK stock returns. Furthermore, we suggest a novel asset pricing model that explicitly incorporates industry concentration as a distinguished risk factor capturing important features of product markets. Our results link
more » ... he explanatory power of R&D activity of stock returns to product market structure. Also, we suggest an explanation for value premium on the basis of product market structure that favours barriers to entry interpretation for the higher returns obtained by less concentrated industries.
doi:10.1080/23322039.2019.1576350 fatcat:tswe4neidzenhlw2rswgqt443a