This paper challenges a core, often implicit, assumption in financial economics: that excess returns must fundamentally be a zero-sum game, arising either from risk compensation (Fama-French) or behavioral biases (Shiller). We propose a new concept, “Market Relativity,” which argues that the nature of an investment return—whether it is competitive or structurally necessary—is not absolute, but depends entirely on the investor‘s chosen frame of reference. · Within a stock-picking reference system, excess returns are a zero-sum competition. · Within an industry-wide reference system, we identify a third source of excess returns: Industrial-Structural Excess Returns. This third source is not a reward for risk or a profit from others’ errors. Instead, it is derived from the productivity axiom that “science and technology are the primary productive forces.” We argue that technology-driven industries, as a whole, generate structurally higher profit margins, making their long-term excess returns a logical necessity. The paper provides a formal definition of Market Relativity and derives a parsimonious, testable strategy (Market Benchmark + Technology-Wide Index + Annual Rebalancing) that does not rely on stock selection or market timing. This framework does not reject existing paradigms (risk, behavioral) but complements them by extending their boundary conditions from individual stocks to industry-wide aggregates.
Huan Dong (Fri,) studied this question.