Product market competition and stock return dependence

We model the spillover effect between competing firms' daily idiosyncratic stock returns, using spatial econometric techniques. Contagion effect from rival firms dominates competitive effect, and the net effect is larger from negative return shocks of rival firms than from positive ones. The net effect is strong for firms in product markets with low concentration and high product market fluidity.

Automated summary

This study uses spatial econometric techniques to model the spillover effect of daily idiosyncratic stock returns between competing firms. The findings show that the contagion effect from rival firms outweighs the competitive effect, and the net effect is stronger for negative return shocks of rival firms compared to positive ones. Moreover, the net effect is particularly prominent for firms operating in product markets with low concentration and high product market fluidity.