Discussion paper

DP15746 International Asset Pricing with Strategic Business Groups

Firms in global markets often belong to business groups. We argue that this feature can have a profound influence on international asset pricing. In bad times, business groups may strategically reallocate risk across affiliated firms to protect core “central firms.” The ensuing hedging demand induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel dataset of worldwide ownership for 2002-2012, we find that central firms are better protected in bad times and that they earn relatively lower-expected returns. Moreover, a centrality factor augments traditional models in explaining the cross-section of international stock returns.


Massa, M, J O'Donovan and H Zhang (eds) (2021), “DP15746 International Asset Pricing with Strategic Business Groups”, CEPR Press Discussion Paper No. 15746. https://cepr.org/publications/dp15746