Competition Links and Stock Returns

41 Pages Posted: 23 Oct 2019

See all articles by Assaf Eisdorfer

Assaf Eisdorfer

University of Connecticut - Department of Finance

Kenneth Froot

National Bureau of Economic Research (NBER); Harvard University - Business School (HBS)

Gideon Ozik

EDHEC Business School

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: October 14, 2019

Abstract

We consider a firm’s competitiveness based on the manner by which other firms mention it on their 10-K filings. Using all public firm filings simultaneously, we implement a PageRank-type algorithm to produce a dynamic measure of firm competitiveness, denoted C-Rank. A high-minus-low C-Rank portfolio yields 16% alpha annually, where return predictability mainly stems from cross-sector competitiveness. The findings are largely consistent with investor underreaction to firm business opportunities identified by other strong firms. Nevertheless, stock return covariation with the C-Rank portfolio spread suggests that part of the return predictability can be interpreted as compensation for systematic cross-sector disruption risk.

Keywords: Text analysis, Competition, Asset pricing

JEL Classification: G12, G14

Suggested Citation

Eisdorfer, Assaf and Froot, Kenneth and Ozik, Gideon and Sadka, Ronnie, Competition Links and Stock Returns (October 14, 2019). Available at SSRN: https://ssrn.com/abstract=3469642 or http://dx.doi.org/10.2139/ssrn.3469642

Assaf Eisdorfer (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Kenneth Froot

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Gideon Ozik

EDHEC Business School ( email )

Nice
France

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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