A0445
Title: Do peer characteristics explain returns: An aggregation approach
Authors: Shuyi Ge - University of Nankai (China) [presenting]
Abstract: The investigation into firm characteristics that matter most has garnered substantial empirical interest. Yet, forecasting cross-sectional stock returns based on traits of other firms remains less explored. Leveraging economic connections among firms, two novel stock-level metrics are introduced: the peer index (PI) and the peer-deviation index (PDI). PI gauges peer relative strength and growth prospects, while PDI signifies a firm's position within its peer group. Evidence demonstrates that both metrics reliably and independently forecast future returns in samples excluding microcaps, supported by high t-ratios and alphas. PI's predictability arises from gradual responses to nuanced growth signals, while PDI identifies within-industry underperformers with overlooked strong fundamentals.
