Industry Style Premiums

Abstract

Size, value, and momentum are well known common factors to stock returns. I document size, value, and momentum premiums in industries are strongly correlated with themselves across industries. The correlation structures indicate strong common factor structure at the industry level. The strong correlation structures at the industry level suggest these styles cannot be explained at the industry level. The correlation structures are time-varying. The average correlation of size, value, and momentum may be interpreted as “industry connectedness” and be used to forecast macroeconomic variables.

Keywords: Industry, Size, Value, Momentum, Fama-French, Forecasting