Predictability of Stock Price Fluctuations Based on Business Relationships: A Comparison of Normal and the COVID-19 Pandemic Periods in Japan

Shoma Sakamoto and Shintaro Sengoku
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Shoma Sakamoto: Department of Technology and Innovation Management, School of Environment and Society, Tokyo Institute of Technology, Tokyo 108-0023, Japan
Shintaro Sengoku: Department of Technology and Innovation Management, School of Environment and Society, Tokyo Institute of Technology, Tokyo 108-0023, Japan

Sustainability, 2021, vol. 13, issue 18, 1-10

Abstract: The stock prices of a company are significantly influenced by changes of its business relationships. However, the effectiveness of stock price prediction based on such inter-firm business relationships has been partially confirmed in limited region and/or timeframe cases. In particular, it has not been verified under highly volatile market conditions such as those caused by the COVID-19 pandemic. To address these issues, we analyzed the impact of supplier–customer relationships on stock prices in the case of the Japanese stock market using The Fama-French three-factor model and publicly available information of business relationships. The subjects were classified into two conditions—normal and COVID-19—and the stock price predictability associated with changes of stock prices of related companies for both short and long holding periods. As a result, the significance of stock price predictability was confirmed on a daily and monthly basis in the given region. In addition, specific factors including a volatile event caused by a customer company, a stock price downturn, and the company size of a customer particularly improved stock price predictability in the pandemic.

Keywords: return predictability; stock price fluctuation; customer-supplier relationship; interfirm relationship; COVID-19; risk management (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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