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The Journal of Portfolio Management

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Return Predictability: Evidence from the US–China Supply Chain

Rui Chen, Zhennan Gao and Xueyong Zhang
The Journal of Portfolio Management April 2019, 45 (4) 143-151; DOI: https://doi.org/10.3905/jpm.2019.45.4.143
Rui Chen
is an associate professor in the School of Finance at the Central University of Finance and Economics in Beijing, China
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Zhennan Gao
is a PhD candidate at the School of Economics at Peking University in Beijing, China
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Xueyong Zhang
is a professor in the School of Finance at the Central University of Finance and Economics in Beijing, China
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Abstract

In this article, by investigating return predictability across a transnational supply chain, the authors present new evidence supporting the hypothesis that value-relevant information diffuses gradually in financial markets because of limited attention from investors. They find that the corresponding trading strategy delivers superior abnormal return. Using a sample of supply chains between Chinese customers and US suppliers from 2009 to 2015 and corresponding financial and return data, the authors show that Chinese customer returns can predict US supplier future return at the firm level. A long–short portfolio strategy based on these findings yields significant abnormal monthly returns of 2.179% (equal-weighted portfolio) in the Fama–French five-factor model. The authors also employ Fama–MacBeth regression analysis and propensity score matching–matched sample analysis, and the conclusions continue to hold.

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The Journal of Portfolio Management: 45 (4)
The Journal of Portfolio Management
Vol. 45, Issue 4
April 2019
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Return Predictability: Evidence from the US–China Supply Chain
Rui Chen, Zhennan Gao, Xueyong Zhang
The Journal of Portfolio Management Mar 2019, 45 (4) 143-151; DOI: 10.3905/jpm.2019.45.4.143

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Return Predictability: Evidence from the US–China Supply Chain
Rui Chen, Zhennan Gao, Xueyong Zhang
The Journal of Portfolio Management Mar 2019, 45 (4) 143-151; DOI: 10.3905/jpm.2019.45.4.143
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  • Article
    • Abstract
    • DATA
    • PORTFOLIO RETURN
    • FAMA–MACBETH REGRESSION
    • FURTHER ANALYSIS USING THE PSM METHOD
    • INVERSE ANALYSIS OF RETURN PREDICTABILITY
    • CONCLUSION
    • ACKNOWLEDGMENTS
    • ENDNOTES
    • REFERENCES
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