Return Predictability in Firms with Complex Ownership Network

AFA 2019 Atlanta Meetings Paper

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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: November 20, 2017

Abstract

In this study, using data from 23 developed markets, we examine all four possible cases of stock return predictability in ownership-linked firms (OLFs): parent-subsidiary, subsidiary-parent, subsidiary-subsidiary, and parent-parent. We find that the returns of OLFs predict returns of the focal firm for all four cases. In particular, a simple long/short portfolio strategy for firms sorted by the lagged monthly returns of OLFs yields the Fama and French (2018) value-weighted six-factor alpha of up to 113 bps per month. The underreaction of focal firms to OLF returns is best explained by active internal capital markets – a specific mechanism unique to OLFs.

Keywords: Cross-listing, Earnings surprises, Investors’ inattention, Limits to arbitrage, Ownership complexity

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 (November 20, 2017). AFA 2019 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=

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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