We examine whether corporate rivals react to industry-specific competition-shocks by increasing product differentiation or, alternatively, by lowering differentiation to capture scale-economies. As rival reactions affect intraindustry cash-flow correlations, these two hypotheses imply...

Roll R² (1988) concludes that our ability to explain stock returns is modest: close to 80% of the daily stock returns variance (65% for monthly stock returns) remain unexplained by a combination of priced factors and a portfolio of industry peers, even controlling for firm specific news...