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Stock returns in global value chains: The role of upstreamness and downstreamness

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  • Branger, Nicole
  • Flacke, René Marian
  • Meyerhof, Paul
  • Windmüller, Steffen

Abstract

We study how upstreamness and downstreamness affect stock returns in global value chains. Upstreamness and downstreamness, which are computed from world input–output tables, measure the average distance from final consumption and primary inputs. We find that downstreamness explains expected returns, whereas upstreamness does not. The downstreamness return premium reflects investors’ compensation for taking on supply-side risks that accumulate along global value chains, such as labor and competition risks. We show that investors perceive far downstream industries as riskier when their suppliers have high unionization rates or labor shares. In addition, far downstream industries operate in more competitive value chains and are characterized by elevated input and output price uncertainties, which makes them particularly risky.

Suggested Citation

  • Branger, Nicole & Flacke, René Marian & Meyerhof, Paul & Windmüller, Steffen, 2023. "Stock returns in global value chains: The role of upstreamness and downstreamness," Journal of Empirical Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:empfin:v:74:y:2023:i:c:s0927539823001044
    DOI: 10.1016/j.jempfin.2023.101437
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    More about this item

    Keywords

    Asset pricing; Input–output table; International financial markets; International trade; Stock returns; Supply chain;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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