Return Predictability Along the Supply Chain: The International Evidence

Predictable Trade Flows and Returns of Trade-Linked Countries

“…Recent research by Cohen and Frazzini (2009), Shahrur, Becker, and Rosenfeld (2009), and Menzly and Ozbas (2010) finds similar customer and supplier momentum at the firm and industry level and presents evidence that the return predictability is consistent with gradual information diffusion (Hong and Stein (1999), Hong, Torous, and Valkanov (2007), Menzly and Ozbas (2010)). Under the hypothesis of gradual information diffusion, due to limited investor attention as well as limited market participation, information diffuses slowly across related assets generating cross-predictability.…”

“…Hong, Tourous, and Valkanov (2007) find that industries lead stock markets. The papers that are most closely related to mine are those of Cohen and Frazzini (2008), Menzly and Ozbas (2010), and Shahrur, Becker, and Rosenfeld (2009). 3 These studies provide evidence of cross-predictability along the supply chain at the firm and industry level.…”

Can Industry‐level Trade Linkage Predict Stock Returns?

“…This is because they are industry-level rather than aggregated at country levels. Moreover, the economic linkages in this paper internationally extend industry-level linkages within one country that were used in Menzly and Ozbas (2010) and Shahrur et al (2010). Second, the industry-level linkages in the GTAP are not as detailed as those used in the previous literature.…”

“…I follow a similar procedure to that of Menzly and Ozbas (2010), Shahrur et al (2010), and Cohen and Frazzini (2008), in that I use lagged returns of economically 3 Cohen and Frazzini (2008) utilize public information of major customers, which firms are required to report under Regulation SFAS No. 131, as obtained from Compustat.…”

“…Similarly, Cohen and Frazzini (2008) investigate whether firm level public information on customer and supplier relationships can be used to obtain abnormal returns. Shahrur et al (2010) extend the scope of studies of predictability to an international setting to examine equities in 22 developed markets but only utilize within country economic linkages, assuming that these countries have very similar within country economic linkages as those in the United States.…”