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

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  • Chikashi Tsuji
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    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.

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    File URL: http://hdl.handle.net/10.1080/14697681003762271
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

    Volume (Year): 12 (2012)
    Issue (Month): 6 (March)
    Pages: 969-991

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    Handle: RePEc:taf:quantf:v:12:y:2012:i:6:p:969-991

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    Cited by:
    1. 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.

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