Return Predictability in Firms with Complex Ownership Network

AFA 2019 Atlanta Meetings Paper

75 Pages Posted: 16 Apr 2020 Last revised: 1 Jun 2020

See all articles by Angelica Gonzalez

Angelica Gonzalez

University of Edinburgh

Sergei Sarkissian

McGill University; University of Edinburgh

Jun Tu

Singapore Management University - Lee Kong Chian School of Business

Ran Zhang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: May 30, 2020

Abstract

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

Keywords: Cross-listing, Decision-making commonality, Earnings surprises, Investors’ inattention, Limits to arbitrage

JEL Classification: G11, G14, G15

Suggested Citation

Gonzalez, Angelica and Sarkissian, Sergei and Tu, Jun and Zhang, Ran, Return Predictability in Firms with Complex Ownership Network (May 30, 2020). AFA 2019 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=3559099 or http://dx.doi.org/10.2139/ssrn.3559099

Angelica Gonzalez

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Sergei Sarkissian (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

HOME PAGE: http://sergei-sarkissian.com

University of Edinburgh

29 Buccleuch Pl.
Edinburgh, Scotland EH8 9JS
United Kingdom

Jun Tu

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
#04-01
Singapore, 178899
Singapore

Ran Zhang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, 200030
China

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