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Do industries contain predictive information for the Fama--French factors?

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  • Chikashi Tsuji

Abstract

We examine whether the returns of US industry portfolios predict the returns and volatility of Fama and French's small-minus-big (SMB) and high-minus-low (HML) factors. The analysis reveals that all 30 industry returns strongly forecast one-month-ahead SMB factor returns. Moreover, a significant number of industry returns predict the volatility of the SMB and HML factors by up to two or three months. These findings suggest that US industry returns contain profitable information on Fama--French SMB and HML factors, and since most investors cannot extract the profitable information contained in industry returns in a timely manner, this information gradually diffuses in equity markets.

Suggested Citation

  • Chikashi Tsuji, 2012. "Do industries contain predictive information for the Fama--French factors?," Quantitative Finance, Taylor & Francis Journals, vol. 12(6), pages 969-991, March.
    • Handle: RePEc:taf:quantf:v:12:y:2012:i:6:p:969-991
    DOI: 10.1080/14697681003762271
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    Cited by:

    1. Chikashi Tsuji, 2017. "A Robust Estimation of the CAPM with a Heavy-tailed Distribution," International Journal of Social Science Studies, Redfame publishing, vol. 5(5), pages 79-86, May.
    2. Tsuji, Chikashi, 2018. "Return transmission and asymmetric volatility spillovers between oil futures and oil equities: New DCC-MEGARCH analyses," Economic Modelling, Elsevier, vol. 74(C), pages 167-185.
    3. Lee, Chien-Chiang & Chen, Mei-Ping & Chang, Chi-Hung, 2013. "Dynamic relationships between industry returns and stock market returns," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 119-144.
    4. Tsuji, Chikashi, 2018. "New DCC analyses of return transmission, volatility spillovers, and optimal hedging among oil futures and oil equities in oil-producing countries," Applied Energy, Elsevier, vol. 229(C), pages 1202-1217.

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