An Empirical Analysis of Industry Concentration Efficacy in the Prediction of Manufacturing Industrie's Stock Returns

The objective of this study is to investigate the impact of industry concentration on the average stock returns prediction, and propose a model to explain this relationship. Explanatory variables are the past one-year's Herfindahl-Hirschman Index of the industry concentration, industry size (market equity), book-to-market ratio, leverage, and systematic risk (beta); also the industry average return is as the dependent variable. The study covers the years 1381 to 1387 and uses 31 manufacturing industry-year observations. With respect to the fact that concentration index is industry specific, all of the dependent and independent variables in this research are evaluated at the industry level. To examine the research hypotheses, the Panel Data technique with Fixed Effect (weighted) and Generalized Least Squares (GLS) methods were employed. Results indicate that in Tehran Securities Exchange, there exists a significant relationship between industry concentration and the size and average stock returns. On the other hand, book-to-market ratio, leverage and systematic risk are not associated with annual industry stock returns.