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Is It Really There? Predictability of Supplier Returns After Large Customer Price Changes

39 Pages Posted: 7 May 2007 Last revised: 29 Jul 2010

Christian Funke

Source For Alpha AG

Timo Gebken

Source For Alpha AG

Lutz Johanning

WHU - Otto Beisheim School of Management

Gaston Michel

Source For Alpha AG

Date Written: July 26, 2010

Abstract

Cohen and Frazzini (2008) examine economically linked firms and document widespread cross-asset return predictability at monthly horizons, specifically from customers to their suppliers. They argue that limited investor attention is responsible for their results. We extend this investigation to the extremes of the return distribution. We examine return predictability for economically linked firms at the daily level by analyzing supplier stock price reaction after large customer price changes. In contrast to Cohen and Frazzini (2008), we conclude that investor attention is only ‘partially limited’ when examining the large, attention-grabbing customer price changes investigated in this paper: return predictability mainly occurs in the first week after the event, does not apply to the largest supplier stocks, and has disappeared, at least for negative events, in the more recent past.

Keywords: Asset pricing, limited attention, return predictability, customer-supplier relationships

JEL Classification: G12, G14

Suggested Citation

Funke, Christian and Gebken, Timo and Johanning, Lutz and Michel, Gaston, Is It Really There? Predictability of Supplier Returns After Large Customer Price Changes (July 26, 2010). Available at SSRN: https://ssrn.com/abstract=984523 or http://dx.doi.org/10.2139/ssrn.984523

Christian Funke (Contact Author)

Source For Alpha AG ( email )

Kugelgasse 2-4
St. Gallen, 9001
Switzerland
+41-71-5112179 (Phone)

HOME PAGE: http://www.source-for-alpha.ch

Timo Gebken

Source For Alpha AG ( email )

Hinterlauben 4
St. Gallen, 9000
Switzerland

Lutz Johanning

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509 720 (Phone)

Gaston Michel

Source For Alpha AG ( email )

Hinterlauben 4
St. Gallen, 9000
Switzerland
+49-611-563561 (Phone)
+49-611-306061 (Fax)

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