Alliances and Return Predictability

Jie Cao, Tarun Chordia and Chen Lin

Journal of Financial and Quantitative Analysis, 2016, vol. 51, issue 5, 1689-1717

Abstract: Building on the growing literature on interfirm links and limited attention, we find evidence of return predictability across alliance partners. A long–short portfolio sorted on lagged returns of strategic alliance partners provides a return of 89 basis points per month that is robust to a number of specifications. Investor inattention and limits to arbitrage may be the source of the underreaction of a firm’s returns to that of its partners.

Date: 2016
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