Competitive interactions and the Bowman paradox

Christensen, M. (Speaker), Nash, U. W. (Co-author), Knudsen, T. (Co-author), Nils Stieglitz (Co-author)

Activity: Talks and presentationsConference presentations

Description

Abstract for the presentation:
According to the Bowman paradox, firms that enjoy higher returns are also exposed to less risk. This observation runs counter to the classical view in portfolio theory, hence the paradox. Despite three decades of research, the source of this phenomenon remains contested. According to the empirical literature, observed patterns of companies’ financial returns (mean) and risks (variance) predominantly include two distinct stylized signatures: negative and U-shaped. In addition, a positive and an inverted U-shaped risk-return profile are theoretically possible. Our main contribution is to provide a unifying explanation that identifies the industry conditions under which each of the stylized risk-return signatures are expected to dominate. Given that firms have differential capabilities we show that market structure and the nature of competition determine the association between risk and returns.
Period16. Jun 2019
Event titleTheoretical Organization Models Meeting 2019: 10th Anniversary Meeting
Event typeConference
LocationFrankfurt, Germany