Competition, Markups, and Predictable Returns

Corhay, A, Kung, H and Schmid, L (2020) Competition, Markups, and Predictable Returns. Review of Financial Studies, 33 (12). pp. 5906-5939. ISSN 0893-9454 OPEN ACCESS


This paper jointly examines the link between competition and expected returns in the time series and in the cross-section. To this end, we build a general equilibrium model where markups vary because of firm entry with oligopolistic competition. When concentration is high, markups are more sensitive to entry risk. We find that higher markups are associated with higher expected returns over time and across industries, in line with the data. The model can also quantitatively account for the persistent rise in aggregate risk premiums and macroeconomic volatility associated with the secular increase trend industry concentration since the mid-1980s.

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Item Type: Article
Subject Areas: Finance
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© 2020 Oxford University Press and Society for Financial Studies. This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record: Alexandre Corhay, Howard Kung, Lukas Schmid, 'Competition, Markups, and Predictable Returns', The Review of Financial Studies, Volume 33, Issue 12, December 2020, Pages 5906–5939, is available online at:

Date Deposited: 08 Sep 2020 07:58
Date of first compliant deposit: 29 Oct 2020
Subjects: Asset valuation
Last Modified: 22 Jun 2024 01:53

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