 Production complementarity and information transmission across industriesCharles Lee, Terrence Tianshuo Shi, Stephen Teng Sun and Ran Zhang Journal of Financial Economics, 2024, vol. 155, issue C Abstract: Economic theory suggests that production complementarity is an important driver of sectoral co-movements and business cycle fluctuations. We operationalize this concept using a measure of production complementarity proximity (COMPL) between any two companies. We show firms from different industries but are closely aligned in COMPL exhibit strong co-movement in their operating, investing, and financing activities, as well as quarterly earnings revisions and monthly returns. We further document a lead-lag effect in their returns, such that a long-short strategy based on recent COMPL peer returns yields a monthly 6-factor alpha of 122 basis points. This inter-industry momentum spillover effect is not explained by other network-based mechanisms, such as shared analyst coverage. We conclude information transmission takes place along complementarity networks, but stock prices do not update instantaneously. Keywords: Momentum spillovers; Economically linked firms; Return prediction; Investor inattention; Information transmission; Cross-industry news; Production complementarity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:155:y:2024:i:c:s0304405x24000357 DOI: 10.1016/j.jfineco.2024.103812 Access Statistics for this article Journal of Financial Economics is currently edited by G. William Schwert More articles in Journal of Financial Economics from Elsevier |
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