Supply Chain Based Equity Strategy
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Contagious Stock Price Crashes
Buhui Qiu; Fangming Xu; Cheng Zeng
- The University of Sydney
- Research Network (United States)
- ?Financial Research Network (FIRN)
- ?University of Sydney Business School
- University of Bristol
- HKHong Kong Polytechnic University
Strategy in a nutshell
Targets suppliers of 2,686 suppliers and 1,071 customers (excluding financials). Detects customer jumps and crashes via 52-week rolling regressions (±3.2 SD). Go long on suppliers of jumping customers, short on suppliers of crashing customers. Value-weighted, 20-day holding, daily rebalanced.
Economic rationale
Customer crashes propagate to economically dependent suppliers via delayed supply-chain contagion. Effect amplified by low analyst coverage, high forecast dispersion, low institutional ownership, and smaller supplier size, highlighting information opacity and delayed price adjustment.
Backtest performance
Annualised return34.84%
Volatility58.68%
Sharpe ratio0.53