Product market competition and intermediate-term momentum

This paper examines the relationship between product market competition and intermediate-term relative strength strategies in the U.S. over the past two decades, i.e., from 1997 to 2016. As industries become increasingly concentrated, I find that return reversal patterns are observable only in competitive industries. As the industry concentration level (ICL) increases, these patterns gradually disappear and reverse in the highly concentrated industry quintile. The performance of intermediate-term relative strength strategies is affected by not only the product market competition level but also recent recessions. In the sample, I find no reliable and robust momentum effect. These results shed new light on the relationship between the product market competition levels and the performance of intermediate-term relative strength strategies.