Product Market Competition and Idiosyncratic Risk
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| Title | Product Market Competition and Idiosyncratic Risk
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| Author | Wu Haomin ,Yang Xingquan and Wei Hui |
| Organization | Economy and Management School, Shihezi University |
| Email | whm_1977@126.com |
| Key Words | Industry Structure; Product Market Competition; Idiosyncratic Risk |
| Abstract | Growing body of foreign literature has directly attributed the significant increasing trend of idiosyncratic return volatility in the U.S. and global capital markets over the past few years and the inter-related decline in firms’ product market competition performance and its stock market efficiency to the increasingly fierce economy-wide competition. This paper focuses on whether our capital market also has such phenomenon? Whether the significant increasing trend of idiosyncratic risk of our listed companies (if) and its performance’s inter-related decline should also attributed to the more intense economy-wide competition in China? How firms’ intense competition in product market is to transfer to its securities market and lead to its risk or frequent fluctuations in return? Based on the related perspective of “structure-risk-return”, the empirical results show that: at least over the past decade, the idiosyncratic risk level of listed companies’ in China is also indeed showing a significant increasing trend; The paper argues that this finding is attributable to the more intense product market competition; despite the significantly divergence of idiosyncratic risk and market risk exists both at home and abroad, the "nature" of divergence was significantly different; and the more concentrated industry structure or firms’ significant product market power can help to alleviate the low efficiency of the company's securities market, that is, they can effectively weaken the idiosyncratic return volatility. |
| Serial Number | WP119 |
| Time | 2011-10-27 |
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