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<p>This paper analyzes the relationship between industry concentration level and stock returns under different levels of industry classification in the USA. We find that the effect varies significantly across different levels of industry classification. Such variation cannot be fully explained by common risk factors such as size, book-to-market ratio, and momentum. The relationship also varies by different sample periods that characterize market microstructure evolution from 1963 to 2019. Two-digit SICCD and Fama French 48 industry classification appear to generate much higher returns from industry concentration level high-minus-low portfolios during the industry consolidation era (1998–2019). The results support both Schumpeter’s theories.</p>

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Industry classification, industry concentration, and stock returns

  • 期刊论文

  • 发表日期：

    2025年3月17日

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  • Scott Li,
  • James Refalo,
  • Jong-Hwan Yi

摘要

This paper analyzes the relationship between industry concentration level and stock returns under different levels of industry classification in the USA. We find that the effect varies significantly across different levels of industry classification. Such variation cannot be fully explained by common risk factors such as size, book-to-market ratio, and momentum. The relationship also varies by different sample periods that characterize market microstructure evolution from 1963 to 2019. Two-digit SICCD and Fama French 48 industry classification appear to generate much higher returns from industry concentration level high-minus-low portfolios during the industry consolidation era (1998–2019). The results support both Schumpeter’s theories.