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Dual Industry Effects and Cross-Stock Predictability

Author

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  • Avramov, D.
  • Ge, S.
  • Li, S.
  • Linton, O. B.

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.

Suggested Citation

  • Avramov, D. & Ge, S. & Li, S. & Linton, O. B., 2025. "Dual Industry Effects and Cross-Stock Predictability," Janeway Institute Working Papers 2506, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2506
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    More about this item

    Keywords

    Cross-Stock Predictability; Industry Effect; Asset Pricing; Economic Links; Information Aggregation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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