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Follow the Leader: Using the Stock Market to Uncover Information Flows between Firms
[Trade credit and cross-country predictable firm returns]

Author

Listed:
  • Anna Scherbina
  • Bernd Schlusche

Abstract

We identify all return leader–follower pairs among individual stocks using Granger causality regressions. Thus-identified leaders reliably predict their followers’ returns out of sample, and the return predictability works at the level of individual stocks rather than industries. Our results indicate that, independent of its size, any firm may emerge as a return leader by being at the center of an important news development that has ramifications for other firms. Indeed, stocks undergoing news-generating developments see an increase in the number of stocks whose returns they lead.

Suggested Citation

  • Anna Scherbina & Bernd Schlusche, 2020. "Follow the Leader: Using the Stock Market to Uncover Information Flows between Firms [Trade credit and cross-country predictable firm returns]," Review of Finance, European Finance Association, vol. 24(1), pages 189-225.
    • Handle: RePEc:oup:revfin:v:24:y:2020:i:1:p:189-225.
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    File URL: http://hdl.handle.net/10.1093/rof/rfy038
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    Citations

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    Cited by:

    1. Yongli Li & Tianchen Wang & Baiqing Sun & Chao Liu, 2022. "Detecting the lead–lag effect in stock markets: definition, patterns, and investment strategies," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-36, December.
    2. Yan, Jingda & Yu, Jialin, 2023. "Cross-stock momentum and factor momentum," Journal of Financial Economics, Elsevier, vol. 150(2).
    3. David Weinbaum & Andrew Fodor & Dmitriy Muravyev & Martijn Cremers, 2023. "Option Trading Activity, News Releases, and Stock Return Predictability," Management Science, INFORMS, vol. 69(8), pages 4810-4827, August.
    4. Daniel Hofmann & Karl Ludwig Keiber, 2021. "Seasonalities in the German stock market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(2), pages 151-192, June.
    5. Cornaggia, Kimberly & Hund, John & Nguyen, Giang, 2022. "Investor attention and municipal bond returns," Journal of Financial Markets, Elsevier, vol. 60(C).
    6. Noh, Joonki & Zhou, Dexin, 2022. "Executives’ Blaming external factors and market reactions: Evidence from earnings conference calls," Journal of Banking & Finance, Elsevier, vol. 134(C).

    More about this item

    Keywords

    Information leadership; Lead–lag effect; Corporate news announcements; Limited attention; Market efficiency;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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