International asset pricing with strategic business groups1

Massimo Massa, James O'Donovan and Hong Zhang

Journal of Financial Economics, 2022, vol. 145, issue 2, 339-361

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.” This strategic behavior induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel data set 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: G12 G15 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:2:p:339-361

DOI: 10.1016/j.jfineco.2021.09.002

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