Concentrated wealth creation in US industries: a few winners take all

Severe asymmetry in long horizon stock returns and concentration of wealth creation can bedetrimental for investors holding a concentrated portfolio of stocks. Therefore, this paperinvestigates the distribution of long horizon stock returns, concentration in wealth creationand the ability of stocks to outperform the risk-free asset in US industries from 1926 to 2018.We find that stock returns are extremely and increasingly skewed over longer horizons, themajority of stocks in US industries is unable to outperform the risk-free rate or inflationand that 23 out of 50 industries have a negative median lifetime buy-and-hold return. Inthe most concentrated industries less than 1% of firms is responsible for all net wealthcreation. Large di↵erences also occur in absolute wealth creation, with some industriescreating close to zero wealth in the entire period from 1926 to 2018 while others createtrillions of dollars in wealth. Fractional regressions are used to explain the cross-section ofconcentration in wealth creation in US industries. This empirical research finds that short-term return characteristics, corporate performance and variability in corporate performancecan explain variation in cross-industry concentration of wealth creation and performanceagainst the risk-free asset.