Dual Industry Effects and Cross-Stock Predictability
Year: 2025
Type: preprint
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.
DOI: 10.17863/cam.118364
Authors: Avramov, D., Ge, S, Li, S, Linton, O. B.
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W6925433248
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