Dual Industry Effects and Cross-Stock Predictability

Doron Avramov, Shuyi Ge, Shaoran Li and Oliver B. Linton

Janeway Institute Working Papers from Faculty of Economics, University of Cambridge

Abstract: This paper introduces the Peer Index (PI), a measure capturing dual industry-related effects in cross-stock predictability: the overall strength of a firm’s peer group and its relative position within the peer group. PI robustly predicts future stock re-turns, earnings surprises, and earnings growth at both the industry and stock levels across short and longer horizons. Its predictive power persists even after controlling for expected returns derived from machine-learning models applied to firm-own characteristics. We provide evidence that markets underreact to peer-related information, with the PI effect stronger when information uncertainty is higher and investor attention lower, driving cross-stock predictability.

Keywords: Cross-Stock Predictability; Industry Effect; Asset Pricing; Economic Links; Information Aggregation (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2025-03-14
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camjip:2506

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