Industry Interdependencies and Cross-Industry Return Predictability

• Main Authors: RAPACH, David E., STRAUSS, Jack, Tu, Jun, ZHOU, Guofu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Complex industry interdependencies; Predictive regression; Adaptive LASSO; Central node; Industry-rotation portfolio; Business cycle; Multifactor model; Principal components; Target-relevant factors; Business; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4515; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5514/viewcontent/RapachStraussTu_2015Dec8_IndustryInterdependenciesXindustryReturnPred_WP.pdf
• Institution: Singapore Management University

We use the adaptive LASSO from the statistical learning literature to identify economically connected industries in a general framework that accommodates complex industry interdependencies. Our results show that lagged returns of interdependent industries are significant predictors of individual ind...