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

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  • Sulaiman Mouselli
  • Aziz Jaafar

Abstract

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 well-known 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 the 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.

Suggested Citation

  • Sulaiman Mouselli & Aziz Jaafar, 2019. "Industry concentration, stock returns and asset pricing: The UK evidence," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1576350-157, January.
    • Handle: RePEc:taf:oaefxx:v:7:y:2019:i:1:p:1576350
    DOI: 10.1080/23322039.2019.1576350
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    Cited by:

    1. Nidhi Kaicker & Radhika Aggarwal, 2023. "Market Structure and Firm Level Returns: The Indian Evidence," International Journal of Global Business and Competitiveness, Springer, vol. 18(1), pages 59-69, June.
    2. Hussain, Tanveer & Tunyi, Abongeh A. & Sufyan, Muhammad & Shahab, Yasir, 2022. "Powerful bidders and value creation in M&As," International Review of Financial Analysis, Elsevier, vol. 81(C).

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