The Stock Market, Product Uniqueness, and Comovement of Peer Firms

Abstract

We introduce a new framework for forming peer rm portfolios that can account for rm uniqueness and organizational form. Our new vocabulary-based peer rm portfolios explain much cross sectional dispersion in rm valuations and generate a direct measure of rm product market uniqueness. We nd that rms have higher stock market valuations than their peers when their products are more unique. This result holds for conglomerate and focused single-segment organizational forms. Increased success in patenting, increased branding, and less venture capital nanced entry into the rm’s product space all contribute to the long-term maintenance of uniqueness and thus higher valuations.