An Intra- and Inter-Industry Evaluation of Three Classification Schemes Common in Capital Market Research

Posted: 10 Oct 2013 Last revised: 8 Jun 2014

See all articles by Karel Hrazdil

Karel Hrazdil

Simon Fraser University

Kim Trottier

Simon Fraser University

Ray Zhang

Simon Fraser University (SFU)

Date Written: January 1, 2014

Abstract

We compare the Standard Industry Classification (SIC), the North American Industry Classification System (NAICS) and the Global Industry Classification Standard (GICS) schemes in their effectiveness to group stocks with similar operating characteristics. We are the first to analyse and compare individual functional category levels within and across each industry classification and test whether the three industry classifications show significant improvement in homogeneity with finer industry partitions across a wide range of research applications. Our results suggest that the GICS system offers advantages over the other two systems in grouping firms across all its levels of industry categories and across different application schemes common to capital market research. However, the SIC and NAICS offer additional advantages across their finest industry partitions. Our study has important implications for users of industry classifications in various financial and economic analyses, research settings and regulatory contexts.

Keywords: Industry classification, Homogeneity, SIC, GICS, NAICS

JEL Classification: C15, G1

Suggested Citation

Hrazdil, Karel and Trottier, Kim and Zhang, Ray, An Intra- and Inter-Industry Evaluation of Three Classification Schemes Common in Capital Market Research (January 1, 2014). Applied Economics, Vol. 46, No. 17, 2014, Available at SSRN: https://ssrn.com/abstract=2337788 or http://dx.doi.org/10.2139/ssrn.2337788

Karel Hrazdil (Contact Author)

Simon Fraser University ( email )

Faculty of Business Administration
8888 University Drive, Simon Fraser University
Burnaby, British Colombia V5A 1S6
Canada
778-782-6790 (Phone)
778-782-4920 (Fax)

HOME PAGE: http://www.sfubusiness.ca

Kim Trottier

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

HOME PAGE: http://business.sfu.ca/profiles/KimTrottier

Ray Zhang

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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