Do industries matter in explaining stock returns and asset-pricing anomalies?

Pin-Huang Chou, Po-Hsin Ho and Kuan-Cheng Ko

Journal of Banking & Finance, 2012, vol. 36, issue 2, 355-370

Abstract: Industry returns cannot be explained fully by well-known asset pricing models. This study reveals that common factors extracted from industry returns carry significant risk premiums that go beyond the explanatory power of size, book-to-market (BM) ratios, and momentum. In particular, this study shows that (1) the small-firm effect is significant only for firms whose market capitalization is below their industry average; (2) the BM effect is an intra-industry phenomenon; (3) a one-year momentum effect is significant only for firms whose BM ratio is smaller than the industry average and limited to non-January months; and (4) there is seasonality in all effects that cannot be explained by risk-based asset-pricing models. Neither rational nor behavioral theories alone can explain industry returns, and it is perhaps too hasty to attribute asset pricing anomalies to a single driving force.

Keywords: Industry; Cross-section; Asset pricing model (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:2:p:355-370

DOI: 10.1016/j.jbankfin.2011.07.016

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