Stock returns in global value chains: The role of upstreamness and downstreamness

Nicole Branger, René Marian Flacke, Paul Meyerhof and Steffen Windmüller

Journal of Empirical Finance, 2023, vol. 74, issue C

Abstract: We study how upstreamness and downstreamness affect stock returns in global value chains. Upstreamness and downstreamness, which are computed from world input–output tables, measure the average distance from final consumption and primary inputs. We find that downstreamness explains expected returns, whereas upstreamness does not. The downstreamness return premium reflects investors’ compensation for taking on supply-side risks that accumulate along global value chains, such as labor and competition risks. We show that investors perceive far downstream industries as riskier when their suppliers have high unionization rates or labor shares. In addition, far downstream industries operate in more competitive value chains and are characterized by elevated input and output price uncertainties, which makes them particularly risky.

Keywords: Asset pricing; Input–output table; International financial markets; International trade; Stock returns; Supply chain (search for similar items in EconPapers)
JEL-codes: D57 F14 G12 G15 L14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:74:y:2023:i:c:s0927539823001044

DOI: 10.1016/j.jempfin.2023.101437

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