Chen Yihui (et al.) from the Hunan University wondered if engagement with the Belt and Road Initiative (BRI) would produce a beneficial stock-price effect for companies involved? Further, would the depth of their involvement be reflected by the magnitude of the stock price response?
The answer turns out to be yes, and yes.
The researchers conducted their work following the creation of a proprietary index of BRI involvement which they claim got over the “..dynamic temporal dimension..” [Me neither, time lagged data collection problems I’m guessing?] problem other information providers’ assessments suffered from.
It’s a short paper with clear conclusions as follows:
- The mechanism for stock price outperformance of firms with high BRI involvement is a) higher earnings and, b) reduced liabilities
- Non SOEs reap higher returns from BRI engagement than SOEs
- The effects are [Unsurprisingly] most pronounced in companies in or related to the construction sector.
Cynics may have expected a different result i.e. BRI involvement reducing earnings as it’s some sort of ‘national service’. Encouraging for the optimists then the reverse seems, in fact, to be the case.
You can read the paper in full via this link BRI engagement and stock returns.
Happy Sunday.