Market power and systematic risk

authored by

Fabian Hollstein, Marcel Prokopczuk, Christoph Matthias Würsig

Abstract

We examine the impact of product market competition on firms' systematic risk. Using a measure of total product market similarity, we document a strong negative relationship between market power and market betas. The effect more than triples in the most recent period of low competition. Anticompetitive mergers result in a significant reduction in market betas. Firms facing less competition seem to be partially insulated from systematic discount-rate shocks. Lower equity costs therefore imply that market power is partly self-perpetuating.

Organisation(s)

Institute of Finance and Commodity Markets

External Organisation(s)

Saarland University

Type

Article

Journal

Financial Management

Volume

53

Pages

233-266

No. of pages

34

ISSN

0046-3892

Publication date

07.05.2024

Publication status

Published

Peer reviewed

Yes

ASJC Scopus subject areas

Economics and Econometrics, Accounting, Finance

Electronic version(s)

https://doi.org/10.1111/fima.12438 (Access: Open)