Do industries lead stock markets?

We investigate whether the returns of industry portfolios predict stock market movements. In the US, a significant number of industry returns, including retail, services, commercial real estate, metal, and petroleum, forecast the stock market by up to two months. Moreover, the propensity of an indus...

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Bibliographic Details
Published in:	Journal of financial economics Vol. 83; no. 2; pp. 367 - 396
Main Authors:	Torous, Walter, Valkanov, Rossen, Hong, Harrison
Format:	Journal Article
Language:	English
Published:	Amsterdam Elsevier 01-02-2007 Elsevier Sequoia S.A
Series:	Journal of Financial Economics
Subjects:	Asset valuation Economic efficiency Finance Industry Information International capital market Macroeconomics Securities markets Stock exchange Stock exchanges Studies U.S.A United States > US
Online Access:	Get full text
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Summary:	We investigate whether the returns of industry portfolios predict stock market movements. In the US, a significant number of industry returns, including retail, services, commercial real estate, metal, and petroleum, forecast the stock market by up to two months. Moreover, the propensity of an industry to predict the market is correlated with its propensity to forecast various indicators of economic activity. The eight largest non-US stock markets show remarkably similar patterns. These findings suggest that stock markets react with a delay to information contained in industry returns about their fundamentals and that information diffuses only gradually across markets. [PUBLICATION ABSTRACT]
Bibliography:	ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23
ISSN:	0304-405X 1879-2774
DOI:	10.1016/j.jfineco.2005.09.010