Out-of-Sample Evidence on Industries’ Abilities to Lead the Stock Market

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School of Business | Bachelor's thesis
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Date
2018
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
26
Series
Abstract
This thesis studies return predictability between industry portfolios and the market portfolio with a dataset spanning from 1926 to 2018. While a previous paper by Hong et al. (2007) finds that several industry portfolios’ lagged returns significantly predict market returns, my study provides evidence on the contrary. I extend the previous study’s sample period both forwards and backwards in time to perform out-of-sample replications that provide evidence of the original sample period’s particular propensity to exhibit the phenomenon. I also confirm previous findings that the effect is stronger prior to data revisions to the industry portfolios. My results are consistent with efficient markets as well as literature in finance addressing replication studies and out-of-sample testing.
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Thesis advisor
Jylhä, Petri
Keywords
industries, returns, replication, gradual, diffusion, information
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