Abstract:Cross-firm predictability among economically linked firms can arise when both firms exhibit their own momentum and their returns are contemporaneously correlated. We show that cross-firm predictability can last up to 10 years, which is hard to reconcile with an interpretation of slow information diffusion. However, it is consistent with the economically linked firms’ commonality in momentum. The contribution of each source can be found by decomposing leaders’ returns into the predictable (momentum) and news co… Show more
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