Abstract

http://ssrn.com/abstract=1421748
 
 

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Strategic Investment and Industry Risk Dynamics


Maria Cecilia Bustamante


London School of Economics & Political Science (LSE)

March 2013


Abstract:     
In this paper we characterize how firms' strategic interaction in product markets affects the industry dynamics of investment and expected returns. Under imperfect competition, a firm's exposure to systematic risk is jointly affected by its own investment strategy and the investment strategies of its industry peers, such that the dynamics of its expected returns depend on the intra-industry value spread. In the model and the data, firms' betas and returns correlate more positively in industries with low value spread, low dispersion in operating mark-ups, and low concentration.

Number of Pages in PDF File: 62

Keywords: expected returns, investment, imperfect competition, strategic interaction, industry concentration

JEL Classification: L11, L22, G11, G12, G31

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Date posted: June 19, 2009 ; Last revised: April 10, 2013

Suggested Citation

Bustamante, Maria Cecilia, Strategic Investment and Industry Risk Dynamics (March 2013). Available at SSRN: http://ssrn.com/abstract=1421748 or http://dx.doi.org/10.2139/ssrn.1421748

Contact Information

Maria Cecilia Bustamante (Contact Author)
London School of Economics & Political Science (LSE) ( email )
Room A370
Houghton Street
London, WC2A 2AE
United Kingdom
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