Industry concentration and average stock returns

Published

Journal Article

Firms in more concentrated industries earn lower returns, even after controlling for size, book-to-market, momentum, and other return determinants. Explanations based on chance, measurement error, capital structure, and persistent in-sample cash flow shocks do not explain this finding. Drawing on work in industrial organization, we posit that either barriers to entry in highly concentrated industries insulate firms from undiversifiable distress risk, or firms in highly concentrated industries are less risky because they engage in less innovation, and thereby command lower expected returns. Additional time-series tests support these risk-based interpretations.

Full Text

Duke Authors

Cited Authors

  • Hou, K; Robinson, DT

Published Date

  • August 1, 2006

Published In

Volume / Issue

  • 61 / 4

Start / End Page

  • 1927 - 1956

Electronic International Standard Serial Number (EISSN)

  • 1540-6261

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/j.1540-6261.2006.00893.x

Citation Source

  • Scopus