What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research

38 Pages Posted: 31 Dec 2002

See all articles by Sanjeev Bhojraj

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

Charles M.C. Lee

Stanford University - Graduate School of Business

Derek Oler

Texas Tech University - Rawls College of Business

Date Written: May 19, 2003

Abstract

This study compares four broadly available industry classification schemes in a variety of applications common to capital market research. SIC codes have been available since 1939, but are being replaced by NAICS codes. The Global Industry Classifications Standard (GICS)SM system, jointly developed by S&P and MSCI, is gaining popularity among financial practitioners, while the Fama and French (1997; FF)) algorithm is devised by academics. Our results show that GICS classifications are significantly better at explaining stock return co-movements, as well as cross-sectional variations in valuation-multiples, forecasted and realized growth rates, R&D expenditures, and various key financial ratios. The GICS advantage is consistent from year-to-year and is most pronounced among large firms. The other three methods differ little from each other in most applications.

JEL Classification: M41, G12, G14

Suggested Citation

Bhojraj, Sanjeev and Lee, Charles M.C. and Oler, Derek, What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research (May 19, 2003). Available at SSRN: https://ssrn.com/abstract=356840 or http://dx.doi.org/10.2139/ssrn.356840

Sanjeev Bhojraj (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

Charles M.C. Lee

Stanford University - Graduate School of Business ( email )

Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

Derek Oler

Texas Tech University - Rawls College of Business ( email )

P.O. Box 42101
Lubbock, TX 79409
United States
806-834-2354 (Phone)
806-742-3182 (Fax)

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