Economic Links and Predictable Returns Appendix

13 Pages Posted: 8 Apr 2016

See all articles by Lauren Cohen

Lauren Cohen

Harvard Business School; National Bureau of Economic Research (NBER)

Andrea Frazzini

AQR Capital Management, LLC

Date Written: April 4, 2016

Abstract

This paper finds evidence of return predictability across economically linked firms. We test the hypothesis that in the presence of investors subject to attention constraints, stock prices do not promptly incorporate news about economically related firms, generating return predictability across assets. We use a dataset of firms’ principal customers to identify a set of economically related firms, and show that stock prices do not incorporate news involving related firms, generating predictable subsequent price moves. A long/short equity strategy based on this effect yields monthly alphas of over 150 basis points.

The paper "Economic Links and Predictable Returns" can be found at http://ssrn.com/abstract=2758776.

Keywords: Economic links, customers, suppliers, inattention

JEL Classification: G10, G11, G14

Suggested Citation

Cohen, Lauren and Frazzini, Andrea, Economic Links and Predictable Returns Appendix (April 4, 2016). Available at SSRN: https://ssrn.com/abstract=2758778 or http://dx.doi.org/10.2139/ssrn.2758778

Lauren Cohen (Contact Author)

Harvard Business School ( email )

Rock Center 321
Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/lcohen

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrea Frazzini

AQR Capital Management, LLC ( email )

Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3894 (Phone)
203-742-3394 (Fax)

HOME PAGE: http://www.econ.yale.edu/~af227/

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