Stock Returns in Global Value Chains: The Role of Upstreamness and Downstreamness
74 Pages Posted: 7 Nov 2019 Last revised: 9 Jun 2022
Date Written: June 08, 2022
We study how upstreamness and downstreamness affect stock returns in global value chains. Up- and downstreamness, which are computed from world input-output tables, measure the average distance from final consumption and primary inputs. We find that downstreamness explains expected returns around the globe, whereas upstreamness does not. Downstreamness captures supply-side risks accumulating along the global value chain. Investors perceive far downstream industries as particularly risky when suppliers have high unionization rates or labor shares.
Additionally, suppliers and customers of far downstream industries are less concentrated and have low market power. These risks translate into elevated input and output price uncertainties for far downstream industries.
Keywords: Asset Pricing, Input Output Table, International Financial Markets, International Trade, Stock Returns, Supply Chain
JEL Classification: D57, F14, G12, G15, L14
Suggested Citation: Suggested Citation