Do Industries Lead the Stock Market? Gradual Diffusion of Information and Cross-Asset Return Predictability

Harrison Hong, Walter Torous and Rossen Valkanov

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: We test the hypothesis that the gradual diffusion of information across asset markets leads to cross-asset return predictability. Using thirty-four industry portfolios and the broad market index as our test assets, we establish several key results. First, a number of industries such as retail, services, commercial real estate, metal, and petroleum lead the stock market by up to two months. In contrast, the market, which is widely followed, only leads a few industries. Importantly, an industry’s ability to lead the market is correlated with its propensity to forecast various indicators of economic activity such as industrial production growth. Consistent with our gradual-information-diffusion hypothesis, these findings indicate that the market reacts with a delay to information in industry returns about its fundamentals.

Date: 2002-11-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
https://www.escholarship.org/uc/item/6x49x543.pdf;origin=repeccitec (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdl:anderf:qt6x49x543

Access Statistics for this paper

More papers in University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().