Economically Linked Firms: An Opportunity for Abnormal Returns has Disappeared, but the Predictability Remain

Abstract

In this master thesis, we investigate whether a customer-momentum strategy, which previously has been shown to yield high abnormal returns performs equally well today. We also examine if there is evidence for bi-directional Granger causality (predictability) between customer and supplier returns, by utilizing customer-supplier links in a panel-data-setup. We find that the abnormal returns from the customermomentum strategy is no longer present in the market, although predictability remains. Further, we find evidence of increased trading activity for the stocks utilized in the portfolio and increased investor attention toward customer-supplier links. Our results are partly consistent towards market efficiency and consistent with greater investor attention towards strategies of abnormal returns, following the publication of a paper demonstrating the effectiveness of this strategy.