Are Industrial Portfolios Leading Indicators of Sectoral Economic Activity?

Abstract/Description

This study investigates whether in the US the prices of industry-specific stock portfolios can serve as leading indicators of sector-level economic activity. The study employs the bias-corrected Diebold-Mariano's test of equal predictive accuracy to evaluate the ability of industry-specific stock portfolios as the leading indicators of the associated sector’s industrial production growth. The research aims to address concerns about aggregate stock prices yielding ambiguous signals due to varying business cycle sensitivities and liquidity levels across industries. It is found that the predictive signals of stocks over and above the lag industrial production growth for future sectoral economic activity are significant only for chemical, electronic equipment, tobacco and steel industries. The study provides new insights into the industry-specific nature of the present value model of stock prices.

Keywords

Industrial Stock Portfolio, Leading Indicator, Industrial Production, Forecasting

Track

Finance

Session Number/Theme

Finance - Session II

Session Chair

Dr. Sana Tauseef

Start Date/Time

13-6-2025 2:15 PM

End Date/Time

13-6-2025 3:55 PM

Location

MCC 12 Ground Floor, AMAN CED Building

Comments

Pl do not publish the abstract or paper in any online platform as the paper is under review at a journal

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Jun 13th, 2:15 PM Jun 13th, 3:55 PM

Are Industrial Portfolios Leading Indicators of Sectoral Economic Activity?

MCC 12 Ground Floor, AMAN CED Building

This study investigates whether in the US the prices of industry-specific stock portfolios can serve as leading indicators of sector-level economic activity. The study employs the bias-corrected Diebold-Mariano's test of equal predictive accuracy to evaluate the ability of industry-specific stock portfolios as the leading indicators of the associated sector’s industrial production growth. The research aims to address concerns about aggregate stock prices yielding ambiguous signals due to varying business cycle sensitivities and liquidity levels across industries. It is found that the predictive signals of stocks over and above the lag industrial production growth for future sectoral economic activity are significant only for chemical, electronic equipment, tobacco and steel industries. The study provides new insights into the industry-specific nature of the present value model of stock prices.