TY - JOUR T1 - Return Predictability: <em>Evidence from the US–China Supply Chain</em> JF - The Journal of Portfolio Management SP - 143 LP - 151 DO - 10.3905/jpm.2019.45.4.143 VL - 45 IS - 4 AU - Rui Chen AU - Zhennan Gao AU - Xueyong Zhang Y1 - 2019/03/31 UR - https://pm-research.com/content/45/4/143.abstract N2 - 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.TOPICS: Security analysis and valuation, factor-based models, performance measurement, emerging ER -