Reference no: EM133254113

1. What can lead to predictability of returns? What is some evidence that supports this? (Much of the evidence is described in Literature Review section)

2. Why do the omit financial firms and very small firms from their sample?

3. The authors use IO (input-output) accounts of the US to proxy for IO in other countries. Why is this ok?

4. What is likely to happen to their ability to find evidence to support their hypotheses if they assume other countries have the same IO structure as the U.S. but don't?

5. Note that customer returns are defined as the weighted average return of all the customer industries. What is it weighted by? (not market value)

6. Which firms tend to be bigger- customer or supplier? What evidence do they show to support this?

7. What do they test (listed under Portfolio Formation heading)?

8. They essentially form groups (portfolios) of 1) suppliers whose customers have low returns, 2) suppliers whose customers have medium returns, and 3) suppliers who have customers have high returns. Instead of forming 3 groups, how many groups do they actually form?

9. Using the 3-group example, if they buy the group of suppliers that have customers with high returns, and sell (short) the suppliers who have customers with low returns, should they make money? To answer this, go down to the green highlight under Supplier Portfolio Abnormal Returns.

10. What model do they use to estimate expected returns? (one way is CAPM, what is the other way the use? Recall that Abnormal_returns = alpha= Actual_return - expected_return

11. Is the result the get from using the four-factor market model very different from the result using the market model?

12.  skip Table 4

13. Based on results in Table 5, is their profitable trading strategy only due to very large or very small suppliers?

14.  Why do the authors conduct a regression analysis?

15. What does Table 7 show? Which coefficient is of strongest interest in Table 7?

Answer questions from the Return Predictability along the Supply Chain: The International Evidence paper!!