Date of Award
Bachelor of Arts
This thesis examines the relationship between competitive advantage and stock performance. Using Morningstar’s economic moat rating classifications, this paper contributes to the competitive advantage literature by providing an empirical assessment of whether wide moat stocks, or companies deemed to have sustainable competitive advantages, made for superior investments compared to non-wide moat stocks over a ten-year time-frame from 2008 to 2017. Additionally, this paper accounts for a previously under-studied topic within the economic moat literature by specifically analyzing three sectors and nine industries. The results indicate that wide moat stocks surprisingly may not make for a superior stock investment, as the wide moat observations in the selected sample were found to have a negative relationship with average annual returns (coefficient = -0.05) that was statistically significant at the 5% level. Companies with no economic moat, meanwhile, were found to have a positive relationship with average annual returns (coefficient = 0.02). Taken together, these results indicate that investment research firms such as Morningstar may place excessive weight on wide moat status and thus undervalue seemingly less attractive companies that have the potential to offer far higher returns.
Manditch, Erik, "Can Economic Moats Provide Investors With a Competitive Advantage?" (2018). Economics Student Theses and Capstone Projects. 95.