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What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research

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Author Info
Sanjeev Bhojraj
Charles M. C. Lee
Derek K. Oler

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Abstract

This study compares four broadly available industry classification schemes in a variety of applications common to capital market research. Standard Industrial Classification (SIC) codes have been available since 1939 but are being replaced by North American Industry Classification System (NAICS) codes. The Global Industry Classifications Standard (GICS)-super-SM system, jointly developed by Standard & Poor's and Morgan Stanley Capital International (MSCI), is popular among financial practitioners, whereas the Fama and French [1997] algorithm is used primarily by academics. Our results show that GICS classifications are significantly better at explaining stock return comovements, as well as cross-sectional variations in valuation multiples, forecasted and realized growth rates, research and development expenditures, and various key financial ratios. The GICS advantage is consistent from year to year and is most pronounced among large firms. The other three methods differ little from each other in most applications. Copyright 2003 Institute of Professional Accounting, University of Chicago.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Accounting Research.

Volume (Year): 41 (2003)
Issue (Month): 5 (December)
Pages: 745-774
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Handle: RePEc:bla:joares:v:41:y:2003:i:5:p:745-774

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  1. Kelly, Bryan & Ljungqvist, Alexander P., 2009. "Testing Asymmetric-Information Asset Pricing Models," CEPR Discussion Papers 7180, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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This page was last updated on 2009-12-19.

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