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Firm power in product market and stock returns

Firm power in product market and stock returns
Firm power in product market and stock returns
We compare the buy-and-hold abnormal returns (BHARs) among the deciles portfolios of firms based on their product market power. We document that the value-weighted portfolios (equally-weighted portfolios) of firms with the strongest product market power generate one-year BHARs ranging from 13.96% (8.85%) to 16.90% (10.63%) higher than the portfolios of the weakest firms. The abnormal returns persist even when we control for industry concentration level (as suggested by Hou and Robinson (2006)), common firm characteristics and alternative industry classifications. The higher returns accrued to the portfolios of firms with the strongest product market power can be attributed to the higher future standardized earnings surprises generated by these firms and their lower idiosyncratic volatility.
Buy-and-hold abnormal returns, Idiosyncratic risk, Product market competition, Standardized earnings surprises
1062-9769
182-193
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b

Jory, Surendranath and Ngo, Thanh (2017) Firm power in product market and stock returns. Quarterly Review of Economics and Finance, 65, 182-193. (doi:10.1016/j.qref.2016.09.008).

Record type: Article

Abstract

We compare the buy-and-hold abnormal returns (BHARs) among the deciles portfolios of firms based on their product market power. We document that the value-weighted portfolios (equally-weighted portfolios) of firms with the strongest product market power generate one-year BHARs ranging from 13.96% (8.85%) to 16.90% (10.63%) higher than the portfolios of the weakest firms. The abnormal returns persist even when we control for industry concentration level (as suggested by Hou and Robinson (2006)), common firm characteristics and alternative industry classifications. The higher returns accrued to the portfolios of firms with the strongest product market power can be attributed to the higher future standardized earnings surprises generated by these firms and their lower idiosyncratic volatility.

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Accepted/In Press date: 26 September 2016
e-pub ahead of print date: 3 October 2016
Published date: August 2017
Keywords: Buy-and-hold abnormal returns, Idiosyncratic risk, Product market competition, Standardized earnings surprises
Organisations: Banking & Finance, Southampton Business School

Identifiers

Local EPrints ID: 405456
URI: http://eprints.soton.ac.uk/id/eprint/405456
ISSN: 1062-9769
PURE UUID: 7ec28297-203a-4255-acd5-c320d4834fa1
ORCID for Surendranath Jory: ORCID iD orcid.org/0000-0002-8265-0001

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Date deposited: 03 Feb 2017 16:43
Last modified: 16 Mar 2024 04:14

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Author: Thanh Ngo

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