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Predicts the performance of firms

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Studies find that the stock market performance of a firm predicts the performance of firms that are economically linked to that firm (e.g., its suppliers). That is, the stock returns of a firm tend to positively predict the stock return of its suppliers. Please explain the potential reasons behind this predictable pattern. If this is due to mispricing, how can you construct a trading strategy to exploit this mispricing behavior?

Reference no: EM133073159

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