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Predictability of Stock Price Fluctuations Based on Business Relationships: A Comparison of Normal and the COVID-19 Pandemic Periods in Japan

Author

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  • Shoma Sakamoto

    (Department of Technology and Innovation Management, School of Environment and Society, Tokyo Institute of Technology, Tokyo 108-0023, Japan)

  • Shintaro Sengoku

    (Department of Technology and Innovation Management, School of Environment and Society, Tokyo Institute of Technology, Tokyo 108-0023, Japan
    Department of Innovation Science, School of Environment and Society, Tokyo Institute of Technology, Tokyo 108-0023, Japan)

Abstract

The stock prices of a company are significantly influenced by changes of its business relationships. However, the effectiveness of stock price prediction based on such inter-firm business relationships has been partially confirmed in limited region and/or timeframe cases. In particular, it has not been verified under highly volatile market conditions such as those caused by the COVID-19 pandemic. To address these issues, we analyzed the impact of supplier–customer relationships on stock prices in the case of the Japanese stock market using The Fama-French three-factor model and publicly available information of business relationships. The subjects were classified into two conditions—normal and COVID-19—and the stock price predictability associated with changes of stock prices of related companies for both short and long holding periods. As a result, the significance of stock price predictability was confirmed on a daily and monthly basis in the given region. In addition, specific factors including a volatile event caused by a customer company, a stock price downturn, and the company size of a customer particularly improved stock price predictability in the pandemic.

Suggested Citation

  • Shoma Sakamoto & Shintaro Sengoku, 2021. "Predictability of Stock Price Fluctuations Based on Business Relationships: A Comparison of Normal and the COVID-19 Pandemic Periods in Japan," Sustainability, MDPI, vol. 13(18), pages 1-10, September.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:18:p:10146-:d:632844
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