Concentration and Stock Returns: Australian Evidence

We argue that not only the standard risk factors (size, book-to-market ratio) affect the average stock returns, but also the structure of the product market itself. We address the issue of competition on the Australian stock market, comparing it to the US stock market. In contrast o the US market, we find a significant evidence that companies operating in highly concentrated industries generate higher risk-adjusted returns than those operating in less concentrated (more competitive) industries. Regarding the standard risk factors, we find that average returns are positively related to the size of the company, and negatively related to book-to-market, which is the opposite to the US stock market as documented in previous studies.