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Product market competition and stock return dependence

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  • Asgharian, Hossein
  • Liu, Lu

Abstract

We model the spillover effect between competing firms’ daily idiosyncratic stock returns, using spatial econometric techniques. Contagion effect from rival firms dominates competitive effect, and the net effect is larger from negative return shocks of rival firms than from positive ones. The net effect is strong for firms in product markets with low concentration and high product market fluidity.

Suggested Citation

  • Asgharian, Hossein & Liu, Lu, 2022. "Product market competition and stock return dependence," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004123
    DOI: 10.1016/j.frl.2022.103207
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    References listed on IDEAS

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    1. Kewei Hou, 2007. "Industry Information Diffusion and the Lead-lag Effect in Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1113-1138.
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    5. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    6. Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, August.
    7. Gerard Hoberg & Gordon Phillips, 2010. "Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3773-3811, October.
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