A look into the cross-section of industry stock returns

• Author(s): Côrte-Real, Filipe José Correia
• Date: 2013
• Persistent ID: http://hdl.handle.net/10362/9840
• Origin: Repositório Institucional da UNL
• Subject(s): Industry size; Industry concentration; Risk premium; Three-factor model
• Document Type: Master thesis
• Language: English
• Advisor(s): Santa-Clara, Pedro
• Contributor(s): Côrte-Real, Filipe José Correia

Description

Average stock returns on industry portfolios are related to industry total market equity and industry market equity concentration. Small industries outperform large industries marginally, while high-concentration industries outperform low-concentration industries significantly. The industry concentration premium persists after controlling for firm size and book-to-market equity ratio. A three-factor model using risk factors associated to industry size and industry concentration compares well to the Fama-French three-factor model, capturing return variation of portfolios formed on industry size, concentration, book-to-market equity, debt-to-equity, dividend-to-price, and earnings-to-price. My results are consistent with traditional economic theory and industry strategic analysis.

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics