Market Segmentation and Cross-Predictability of Returns

65 Pages Posted: 25 May 2007 Last revised: 2 Nov 2009

See all articles by Lior Menzly

Lior Menzly

University of Chicago - Booth School of Business

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: October 29, 2009

Abstract

We present evidence supporting the hypothesis that due to investor specialization and market segmentation, value-relevant information diffuses gradually in financial markets. Using the stock market as our setting, we find that (i) stocks that are in economically related supplier and customer industries cross-predict each other's returns, (ii) the magnitude of return cross-predictability declines with the number of informed investors in the market as proxied by the level of analyst coverage and institutional ownership, and (iii) changes in the stock holdings of institutional investors mirror the model trading behavior of informed investors.

Suggested Citation

Menzly, Lior and Ozbas, Oguzhan, Market Segmentation and Cross-Predictability of Returns (October 29, 2009). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=989080

Lior Menzly

University of Chicago - Booth School of Business ( email )

1101 East 58th Street
c/o PhD Office
Chicago, IL 60637
United States
(773) 702-7420 (Phone)
(773) 702-5257 (Fax)

Oguzhan Ozbas (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,463
Abstract Views
4,781
rank
13,522
PlumX Metrics