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Primary Article

Peer Pressure

Turan G. Bali, K. Ozgur Demirtas, Armen Hovakimian and John J.. Merrick
The Journal of Portfolio Management Spring 2006, 32 (3) 80-91; DOI: https://doi.org/10.3905/jpm.2006.628409
Turan G. Bali
An associate professor of finance in the Zicklin School of Business of Baruch College in New York City.
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  • For correspondence: Turan_Bali@baruch.cuny.edu
K. Ozgur Demirtas
An assistant professor of finance in the Zicklin School of Business.
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  • For correspondence: Ozgur_Demirtas@baruch.cuny.edu
Armen Hovakimian
An associate professor of finance in the Zicklin School of Business.
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  • For correspondence: Armen_Hovakimian@baruch.cuny.edu
John J.. Merrick Jr
Richard S. Reynolds associate professor of business in the Mason School of Business at the College of William and Mary in Williamsburg, VA.
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  • For correspondence: John.Merrick@mason.wm.edu
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Abstract

Investment bankers focus on narrow industry-based peer groups for individual stock valuation, and some market-neutral equity hedge fund managers restrict portfolios to be sector-neutral. Despite the academic research that typically ignores industry effects, the evidence is that industry effects matter. Narrow industry-based peer groups improve stock valuation precision for three key valuation ratios. In a sample including the boom and bust period of the late 1990s, contrarian strategies were particularly profitable for Nasdaq-listed stocks. For the full sample of stocks, an industry-neutral strategy is better than an industry-exposed full universe strategy in Sharpe ratio terms over every horizon for each valuation ratio.

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The Journal of Portfolio Management
Vol. 32, Issue 3
Spring 2006
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Peer Pressure
Turan G. Bali, K. Ozgur Demirtas, Armen Hovakimian, John J.. Merrick
The Journal of Portfolio Management Apr 2006, 32 (3) 80-91; DOI: 10.3905/jpm.2006.628409

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Peer Pressure
Turan G. Bali, K. Ozgur Demirtas, Armen Hovakimian, John J.. Merrick
The Journal of Portfolio Management Apr 2006, 32 (3) 80-91; DOI: 10.3905/jpm.2006.628409
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