Biography: Dr. Ran Zhang received her Ph.D. from University of Colorado at Boulder. She is currently the Professor of Accounting at the Business School in Renmin University of China. She is also listed as “China High Cited Scholar” of Elsevier. She worked as a faculty member at the Guanghua School of Management, Peking University from 2006 to 2019. She is currently a member of the first Accounting Standards Advisory Committee of the Ministry of Finance and serves as an independent director and chairman of the audit committee of BYD Company Ltd. Her research interest is in Quantamental Investing and Private Equity Investing. She has published more than 30 academic papers in leading international and Chinese academic journals, including Journal of Financial Economics, The Accounting Review, et al. According to Google Scholar, her published papers are cited more than 1,800 times, with h-index at 22 and i10-index at 28. Her findings on technological momentum have been used widely in the investing industry. She also won numerous academic awards, including the Roger F. Murray First Prize of Outstanding Research for the Institute of Quantitative Research in Finance. Her book, Quantamental Investing, is listed as the best seller of Finance and Investment Books on Amazon China 2017.
Topic: Production Complementarity and Momentum Spillover Across Industries
Abstract: Economic theory suggests production complementarity is an important driver of sectoral co-movements and business cycle fluctuations. We operationalize this concept by developing a measure of the production complementarity distance (COMPL) between any two companies. We find that firms co-move strongly with their complementor peer firms in terms of economic fundamentals. Furthermore, we find a robust lead-lag relationship between the stock returns of the complementors and the focal firm. The economic magnitude of this lead-lag effect is substantial, with a hedged portfolio constructed based on the price signals of the complementors producing a monthly alpha of 137 basis points or 16.4% on an annual basis. This complementor momentum effect is robust after controlling for a variety of predictive variables, including firm size, book-to-market, short-term reversal, and medium-term price momentum. It is distinct from, and cannot be explained by, previously documented lead-lag effects such as industry momentum, customer-supplier momentum, technology momentum or momentum spillover due to common analyst coverage. We further provide evidence that the main driver of this effect is a form of investor inattention or sluggish adjustment to value relevant information along the complementarity network. The effect is strongest for firms that receive less investor attention and are more costly to arbitrage. Shared analyst coverage is relatively rare among complementor firms (which are from different industries by construction), but where it exists, common coverage improves the price adjustment process, leading to shorter momentum spillover effects.