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Do industries lead stock markets? A reexamination

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  • Tse, Yiuman

Abstract

Hong et al. (2007) report that a number of U.S. industry returns can forecast the stock market using monthly data. Reexamining their results with an extended period, 1946–2013, and data, 48 industries, I find that only one to seven industries have significant predictive ability for the stock market, depending on the significance level (10% or 5%) and the model specifications used. However, I find some evidence of the opposite predictive direction from the stock market to industries. The stock market also performs better than industries in predicting economic growth. Using similar data, 34 industries, and period, 1946–2002, as Hong et al., I find that the results are less significant after data revisions. My overall results are consistent with the efficient market hypothesis.

Suggested Citation

  • Tse, Yiuman, 2015. "Do industries lead stock markets? A reexamination," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 195-203.
  • Handle: RePEc:eee:empfin:v:34:y:2015:i:c:p:195-203
    DOI: 10.1016/j.jempfin.2015.10.003
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    References listed on IDEAS

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    1. Hong, Harrison & Torous, Walter & Valkanov, Rossen, 2007. "Do industries lead stock markets?," Journal of Financial Economics, Elsevier, vol. 83(2), pages 367-396, February.
    2. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 631-653.
    3. Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
    4. David E. Rapach & Jack K. Strauss & Guofu Zhou, 2013. "International Stock Return Predictability: What Is the Role of the United States?," Journal of Finance, American Finance Association, vol. 68(4), pages 1633-1662, August.
    5. Joseph Gyourko & Donald B. Keim, "undated". "What Does the Stock Market Tell Us About Real Estate Returns? (Revision of 18-91) (Reprint 030)," Rodney L. White Center for Financial Research Working Papers 11-92, Wharton School Rodney L. White Center for Financial Research.
    6. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
    7. Joseph Gyourko & Donald B. Keim, 1992. "What Does the Stock Market Tell Us About Real Estate Returns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(3), pages 457-485.
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    Cited by:

    1. Matteo Bonato & Riza Demirer & Rangan Gupta, 2016. "The Predictive Power of Industrial Electricity Usage Revisited: Evidence from Nonparametric Causality Tests," Working Papers 201679, University of Pretoria, Department of Economics.
    2. repec:jfr:ijfr11:v:9:y:2018:i:1:p:8-30 is not listed on IDEAS

    More about this item

    Keywords

    Asset pricing; Financial markets and macroeconomy; Information and market efficiency;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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