Trade Credit and International Return Comovement

Rui Albuquerque and Sumudu Watugala
Authors registered in the RePEc Author Service: Tarun Ramadorai

No 8222, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine trade credit links between firms as a channel of international return comovement. We model firms in different countries connected by trade credit links in segmented stock markets with asymmetrically informed investors. The model predicts that the cross-serial correlation of country stock returns increases as trade credit increases. Using data from 42 countries from 1993 to 2009, we find evidence consistent with the model. Stock returns of high trade credit firms in exporting countries are predicted by the returns of the countries that consume this output. A model-implied cross-country long-short portfolio strategy yields 12-15 percent annualized, after risk adjustment.

Keywords: Asymmetric information; International stock return comovement; Rebalancing trades; Trade credit (search for similar items in EconPapers)
JEL-codes: F30 F36 F37 G12 G15 (search for similar items in EconPapers)
Date: 2011-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://cepr.org/publications/DP8222 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8222

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8222

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().