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Cointegration, information transmission, and the lead-lag effect between industry portfolios and the stock market

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorTroster, Víctor Emilio
dc.contributor.authorPenalva, José S.
dc.contributor.authorTaamouti, Abderrahim
dc.contributor.authorWied, Dominik
dc.contributor.funderMinisterio de Educación, Cultura y Deporte (España)es
dc.date.accessioned2022-05-09T17:22:36Z
dc.date.available2023-02-01T00:00:06Z
dc.date.issued2021-02-01
dc.description.abstractThis paper shows that lagged information transmission between industry port-folio and market prices entails cointegration. We analyze monthly industry portfolios in the US market for the period 1963–2015. We find cointegration between six industry portfolio and market prices. We show that the equilibrium error, the long-term common factor between industry portfolio and market cumulative returns, has strong predictive power for excess industry portfolio returns. In line with gradual information diffusion across connected industries, the equilibrium error proxies for changes in the investment oppor-tunity set that lead to industry return predictability by informed investors. Forecasting models including the equilibrium error have superior forecasting performance relative to models without it, illustrating the importance of cointegration between the industry portfolio and market prices. Overall, our findings have important implications for investment and risk-management decisions, since the out-of-sample explanatory power of the equilibrium error is economically meaningful for making optimal portfolio allocations.en
dc.description.sponsorshipMinisterio de Educación, Cultura y Deporte, Grant/Award Number:ECO2017-83255-C3-2-P
dc.identifier.bibliographicCitationTroster, V., Penalva, J., Taamouti, A., & Wied, D. (2021). Cointegration, information transmission, and the lead‐lag effect between industry portfolios and the stock market. In Journal of Forecasting, 40 (7), pp. 1291–1309.es
dc.identifier.doihttps://doi.org/10.1002/for.2767
dc.identifier.issn0277-6693
dc.identifier.publicationfirstpage1291es
dc.identifier.publicationissue7es
dc.identifier.publicationlastpage1309es
dc.identifier.publicationtitleJOURNAL OF FORECASTINGes
dc.identifier.publicationvolume40es
dc.identifier.urihttps://hdl.handle.net/10016/34747
dc.identifier.uxxiAR/0000027848
dc.language.isoenges
dc.publisherWileyes
dc.relation.projectIDGobierno de España. ECO2017-83255-C3-2-P
dc.rights© 2021 John Wiley & Sons, Ltd.es
dc.rights.accessRightsopen accesses
dc.subject.ecienciaEconomíaes
dc.subject.ecienciaEmpresaes
dc.subject.jelG10
dc.subject.jelG12
dc.subject.jelG14
dc.subject.jelG17
dc.subject.otherCointegrationen
dc.subject.otherEquilibrium erroren
dc.subject.otherError correctionen
dc.subject.otherInformation diffusionen
dc.subject.otherOut-of-sample forecasten
dc.subject.otherStock return predictabilityen
dc.titleCointegration, information transmission, and the lead-lag effect between industry portfolios and the stock marketen
dc.typeresearch article*
dc.type.hasVersionAM*
dspace.entity.typePublication
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