Is sustainable competitive advantage an advantage for stock investors?

descriptionPublicationkeyboard_double_arrow_right Article 01 Feb 2017 English Publisher:Elsevier BVJournal:The Quarterly Review of Economics and Finance, volume 63, pages 299-314 (issn: 1062-9769,

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Authors: Yi Liu; Tomas Mantecon;

doi: 10.1016/j.qref.2016.04.007

Is sustainable competitive advantage an advantage for stock investors?

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Abstract

Abstract Investing in stocks of companies with sustainable competitive advantage, the moat, does not earn higher raw returns. These companies tend to be larger, financially stronger, and have lower book-to-market ratios (growth stocks). After controlling for size, book-to-market ratio and other risk factors, sustainable competitive advantages is a positive factor affecting cross-section of stock returns. Firms with sustainable competitive advantage also seem to be shielded from mean reversion of higher profitability better than non-wide moat firms.

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