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.
Highlights
Our interpretation of the results of this study is identical: as the trend during the COVID-19 pandemic period has clearly shown, these results have pointed out that the psychological situation of investors is a significant factor with the stock price volatility, which advocates the importance of quantifying possible future risks according to the attributes and size of the company
This study investigated the predictability of stock price fluctuations in Japanese stock markets based on inter-firm relationships and compared tendencies between normal times and the COVID-19 pandemic period
The results revealed that stock price predictability is effective on a daily and monthly basis in the Japanese market, and that stock price prediction is effective in both normal and the COVID-19 pandemic periods
Summary
The global economy experienced its first negative growth in 11 years and stock prices in many countries have recorded significant fluctuations
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