International Asset Pricing with Strategic Business Groups

Massimo Massa, James O'Donovan and Hong Zhang

No 15746, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Firms in global markets often belong to business groups. We argue that this feature can have a profound influence on international asset pricing. In bad times, business groups may strategically reallocate risk across affiliated firms to protect core “central firms.†The ensuing hedging demand induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel dataset of worldwide ownership for 2002-2012, we find that central firms are better protected in bad times and that they earn relatively lower-expected returns. Moreover, a centrality factor augments traditional models in explaining the cross-section of international stock returns.

Keywords: International asset pricing; Business groups; Centrality; Co-movement (search for similar items in EconPapers)
JEL-codes: G20 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cwa
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