Industry Networks and the Speed of Information Flow

53 Pages Posted: 30 Nov 2014 Last revised: 1 Dec 2014

See all articles by Joonki Noh

Joonki Noh

Case Western Reserve University - Department of Banking and Finance

Date Written: November 27, 2014

Abstract

We investigate whether an industry's position in the network of inter-industry trade affects the speed of information flow. We find that return predictability to central industries from their related (=customer and supplier) industries is substantially stronger than that to peripheral industries from their related industries. Long-short portfolios of central industries yield risk-adjusted returns of 7.0% to 7.9% per annum, which are 3.6% to 5.3% higher than those of peripheral industries. To explain this finding, we argue that investors who invest in central industries need to process more complicated information about related industries, making the prices of central industries slower to incorporate all the information. We find that sell-side analysts of central industries also face more complicated information about related industries, as their earnings forecast revisions of related industries predict their future revisions of central industries more strongly. In addition, we present evidence that our finding is not explained by existing anomalies.

Keywords: Industry Networks, Information Flow, Return Cross-predictability, Information Complexity, Sell-side Analysts

JEL Classification: G12, G14

Suggested Citation

Noh, Joonki, Industry Networks and the Speed of Information Flow (November 27, 2014). Available at SSRN: https://ssrn.com/abstract=2531450 or http://dx.doi.org/10.2139/ssrn.2531450

Joonki Noh (Contact Author)

Case Western Reserve University - Department of Banking and Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States
216-368-3737 (Phone)

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