Risk-adjusted performance of new economy indices and thematic sectors

David Grau-Vera and Gonzalo Rubio

Research in International Business and Finance, 2024, vol. 71, issue C

Abstract: We analyze the performance and risk factor exposures of 10 thematic sectors and the associated market-wide indices directly related to highly innovative industries driving the fourth and fifth industrial revolutions. Formal statistical analysis shows that we cannot reject that alphas are jointly zero for alternative combinations of 12 recognized risk factors. When we analyze the exposure of these indices and sectors to risk factors, we find that they are generally small and weakly profitable. Moreover, these thematic sectors react badly to adverse shocks in the expected market risk premium suggesting an increasing risk of these sectors during high marginal utility events. The Future Communication sector is a notable exception to the joint zero-alpha performance. Despite the small possibility of very high returns in the future if their innovation becomes successful, it seems advisable to use these sectors by combining them with either industrial sectors or smart beta portfolios.

Keywords: New economy indices; Thematic sectors; Risk factors; Factor exposure; Performance; Expected market risk premia (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002319

DOI: 10.1016/j.ribaf.2024.102438

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