Feedback loops in industry trade networks and the term structure of momentum profits

• 成果类型: Article
• 署名作者: Sharifkhani, Ali; Simutin, Mikhail
• 署名单位: Northeastern University; University of Toronto
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.04.028
• 发表日期: 2021
• 页码: 1171-1187
• 关键词: Industry trade networks; Momentum echo; Information diffusion; Intersectoral input-output links

摘要

Industries are economically linked through customer-supplier trade flows. We show that industry shocks propagating along this intersectoral trade network can feed back to the originating industry, causing an echo-intermediate-term autocorrelation in returns. Adopting techniques from graph theory, we find that the strength of the trade network feedback is a crucial determinant of the echo effect in industry returns. Returns of the echo strategy implemented within high-feedback strength industries reach 1% monthly. Consistent with limited-information models, the relation between feedback strength and echo profits is strongest in industries with information diffusion frictions, such as low analyst coverage, along the feedback loop. Overall, our results identify intersectoral trade networks as important conduits of industry shocks and provide the first explanation for the echo effect. (c) 2021 Published by Elsevier B.V.