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Do Industries Predict the Stock Market Due to Slow Diffusion of Information?

African Journal of Business Management, Vol. 5, No. 34, pp. 12958-12965, 2011

8 Pages Posted: 11 Jan 2012  

Attaullah Shah

Institute of Management Sciences

Akhtar Munir

affiliation not provided to SSRN

Safiullah Khan

Kohat University of Science & Technology, Kohat, Pakistan.

Zaheer Abbas II

International Islamic University

Date Written: December 28, 2011

Abstract

The slow diffusion of information hypothesis has emerged as a more convincing explanation for lead-lag patterns in assets returns compared to traditional explanations such as non-synchronous or thin trading, liquidity factor, or size factor, etc. We provide further support to slow diffusion of information hypothesis from an emerging market. We use a rich data set of weekly returns of 34 industries listed at the Karachi Stock Exchange over the period 1998 to 2011. In a separate regression for each industry, we regress KSE-100 Index current returns on the lagged industry returns and a set of control variables. Our results indicate that a large number of industries predict the market returns up to 3 weeks. The predictive power of industries decreases as we increase the prediction horizon. These findings are robust even after we control for known predictors of market return such as size of an industry, trading volume of an industry, and the lagged trading volume of the market. Our results support the slow diffusion of information hypothesis.

Keywords: Lead-lag pattern, slow diffusion of information, Karachi stock exchange, industry returns, returns predictability, Pakistan

JEL Classification: G32

Suggested Citation

Shah, Attaullah and Munir, Akhtar and Khan, Safiullah and Abbas, Zaheer, Do Industries Predict the Stock Market Due to Slow Diffusion of Information? (December 28, 2011). African Journal of Business Management, Vol. 5, No. 34, pp. 12958-12965, 2011. Available at SSRN: https://ssrn.com/abstract=1982641

Attaullah Shah (Contact Author)

Institute of Management Sciences ( email )

1-A, Sector E / 5, Phase – VII, Hayatabad, Peshawa
Peshawar, NWFP 25000
Pakistan
+923459146115 (Phone)

HOME PAGE: http://www.opendoors.pk

Akhtar Munir

affiliation not provided to SSRN

Safiullah Khan

Kohat University of Science & Technology, Kohat, Pakistan. ( email )

Kohat
Kohat
Pakistan

Zaheer Abbas

International Islamic University ( email )

PO Box 1243
Sector H-10
Islamabad, PA Kpk 44000
Pakistan

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