Predictability of Supplier Returns After Large Customer Price Changes
This essay documents return predictability across stocks, specifically from customers to their suppliers. I extend the investigation of Cohen and Frazzini (2006), who examine monthly return predictability for economically linked firms, to analysis at the daily level and show that for large positive (negative) customer price change events supplier stock prices experience significantly positive (negative) cumulative abnormal returns for up to 20 days after the event. However, the major part of these returns arises in the first five days and such return predictability cannot be observed for the largest stocks and the most recent time period, indicating that capital markets are relatively efficient in incorporating extreme customer return shocks into supplier stock prices. Hence, limited investor attention to information on economically linked firms seems to be less severe for the attentiongrabbing events investigated in this essay.
KeywordsStock Return Abnormal Return Cumulative Abnormal Return Cumulative Abnormal Return Return Predictability
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