Return predictability in firms with complex ownership network

Publication Type

Working Paper

Version

publishedVersion

Publication Date

12-2020

Abstract

Using global cross-ownership data, we show return predictability for all four possible cases in ownership-linked firms (OLFs): subsidiary-parent, parent-subsidiary, subsidiary-subsidiary, and parent-parent. A long/short portfolio strategy sorted by the lagged monthly returns of OLFs yields monthly Fama-French six-factor alpha of 79-113 bps. These results are not subsumed by customer-supplier relations, industry or cross-country return momentums. The return predictability in OLFs is best explained by active internal capital markets – a mechanism unique to firms with complex ownership.

Keywords

Decision-making commonality, Earnings surprises, Investors’ inattention, Limits to arbitrage

Discipline

Corporate Finance | Finance | Finance and Financial Management

Research Areas

Finance

First Page

1

Last Page

77

Identifier

10.2139/ssrn.3559099

Publisher

SSRN

External URL

https://dx.doi.org/10.2139/ssrn.3559099

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