TY - JOUR T1 - Peer Pressure JF - The Journal of Portfolio Management SP - 80 LP - 91 DO - 10.3905/jpm.2006.628409 VL - 32 IS - 3 AU - Turan G. Bali AU - K. Ozgur Demirtas AU - Armen Hovakimian AU - John J.. Merrick, Jr Y1 - 2006/04/30 UR - https://pm-research.com/content/32/3/80.abstract N2 - 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.TOPICS: Accounting and ratio analysis, equity portfolio management, portfolio construction ER -