The value premium within and across GICS industry sectors in a pre-financial collapse sample

Figures & data

Table

Code	Sector	Subcode	Industry groups
10	Energy	1010	Energy
15	Materials	1510	Materials
20	Industrials	2010	Capital goods
		2020	Commercial services and supplies
		2030	Transportation
25	Consumer discretionary	2510	Automobiles and components
		2520	Consumer durables and apparel
		2530	Consumer services
		2540	Media
		2550	Retailing
30	Consumer staples	3010	Food and staples retailing
		3020	Food, beverage and tobacco
		3030	Household and personal products
35	Health care	3510	Health care equipment and services
		3520	Pharmaceuticals, biotechnology and life sciences
40	Financials	4010	Banks
		4020	Diversified financials
		4030	Insurance
		4040	Real estate
45	Information technology	4510	Software and services
		4520	Technology hardware and equipment
		4530	Semiconductors and semiconductor equipment
50	Telecommunication services	5010	Telecommunication services
55	Utilities	5510	Utilities

Table 1. Industry group BE/ME characteristics ordered by median BE/ME. June 1999 to May 2007, (n = 96)

BE/ME rank		Industry group	Sample size	Median ME	Mean BE/ME	Median BE/ME	Std. Dev. BE/ME
1	Pharmaceuticals, biotechnology and life sciences	3520	324	149.84	0.38	0.25	0.08
2	Health care equipment and services	3510	458	106.31	0.94	0.41	0.10
3	Software and services	4510	587	88.72	0.49	0.42	0.21
4	Household and personal products	3030	54	53.07	0.87	0.44	0.13
5	Telecommunication services	5010	93	209.47	0.77	0.50	0.20
6	Technology hardware and equipment	4520	651	130.05	0.65	0.50	0.17
7	Media	2540	161	279.53	0.68	0.51	0.13
8	Energy	1010	274	239.99	0.96	0.52	0.15
9	Food, beverage, and tobacco	3020	134	159.95	0.86	0.56	0.08
10	Commercial services and supplies	2020	300	103.59	0.96	0.58	0.13
11	Utilities	5510	134	1,344.05	0.80	0.59	0.05
12	Capital goods	2010	430	150.54	1.06	0.62	0.15
13	Food and staples retailing	3010	44	436.43	0.86	0.62	0.13
14	Banks	4010	723	106.69	0.74	0.65	0.13
15	Materials	1510	264	206.88	1.28	0.65	0.16
16	Retailing	2550	280	238.71	1.38	0.66	0.26
17	Diversified financials	4020	165	190.73	1.39	0.67	0.21
18	Consumer services	2530	196	116.67	1.36	0.67	0.23
19	Transportation	2030	94	314.27	0.88	0.69	0.20
20	Real estate	4040	251	363.25	1.09	0.74	0.17
21	Automobiles and components	2510	75	177.28	0.97	0.74	0.23
22	Consumer durables and apparel	2520	288	99.77	1.50	0.79	0.23
23	Insurance	4030	143	538.78	1.02	0.83	0.12

Notes: The sample is collected from all active and inactive US firms trading on the NYSE, AMEX, NASDAQ exchanges, and all other over-the-counter stocks (OTCBB, Pink Sheets, and “Other-OTC”) sourced from the Research Insight database. Securities not representing the primary trading equity of the company are omitted. GICS history in Research Insight is available only from June 1999 to May 2007. Stock GICS are observed at May of year t except for the initial year 1999 when data history limitations require GICS for 1999 to be observed in June rather than in May. Prior to 2003, the GICS industry group code 4530 representing the semiconductors industry is included in code 4520. The two industry groups are re-combined for the purpose of this research because no data for code 4530 is available prior to 2003. BE/ME equity is observed in Research Insight at month end December t − 1. Market equity (ME) is observed at May of year t. The traditional portfolio formation date in prior research occurs in July of year t capturing returns from that date through June of year t + 1. However, in order to maximize the length of the historical GICS time series available, a portfolio formation date of June was used. Monthly total returns are observed June to May and accessed in Research Insight. Stocks with negative BE/ME, stocks without data reporting for ME, GICS, BE/ME, and stocks within the GICS unassigned industry group “0” data are removed from the sample. Stocks with a ME less than $1 million are removed to mitigate problems associated with non-synchronous trading, bid-ask noise and error pricing.

Table 2. Annual ranking of GICS industry BE/ME characteristics. June 1999 to May 2007, (n = 96)

BE/ME rank		Industry group	2000	2001	2002	2003	2004	2005	2006	2007	Median BE/ME rank	Minimum BE/ME rank	Maximum BE/ME rank	Range BE/ME rank
1	Pharmaceuticals, biotechnology and life sciences	3520	1	2	1	1	1	1	1	1	1	1	2	1
2	Software and services	4510	2	1	10	3	6	3	2	4	3	1	10	9
3	Health care equipment and services	3510	8	6	3	2	3	4	4	2	4	2	8	6
4	Household and personal products	3030	5	7	7	4	2	2	3	5	5	2	7	5
5	Technology hardware and equipment	4520	11	4	4	5	20	5	7	10	6	4	20	16
6	Energy	1010	20	8	2	6	4	13	8	3	7	2	20	18
7	Telecommunication services	5010	3	3	6	11	21	9	6	17	8	3	21	18
8	Media	2540	4	5	9	8	9	6	14	15	9	4	15	11
9	Food, beverage, and tobacco	3020	6	11	8	9	5	14	16	12	10	5	16	11
10	Commercial services and supplies	2020	7	9	12	12	10	7	10	13	10	7	13	6
11	Utilities	5510	10	13	5	10	7	22	22	18	12	5	22	17
12	Capital goods	2010	15	16	11	13	14	12	11	8	13	8	16	8
13	Retailing	2550	12	10	22	14	18	10	9	7	11	7	22	15
14	Diversified financials	4020	18	14	19	18	13	8	12	11	14	8	19	11
15	Food and staples retailing	3010	9	12	13	7	15	19	21	16	14	7	21	14
16	Consumer services	2530	22	20	18	17	12	11	5	6	15	5	22	17
17	Banks	4010	13	17	14	15	8	15	17	21	15	8	21	13
18	Materials	1510	17	15	15	19	16	16	13	14	16	13	19	6
19	Transportation	2030	14	18	20	20	17	18	15	9	18	9	20	11
20	Automobiles and components	2510	16	19	23	21	19	17	19	22	19	16	23	7
21	Real estate	4040	23	22	17	16	11	21	20	19	20	11	23	12
22	Consumer durables and apparel	2520	21	21	21	22	22	20	18	20	21	18	22	4
23	Insurance	4030	19	23	16	23	23	23	23	23	23	16	23	7
	Pearson correlation: annual median BE/ME ranking with the overall sample period median BE/ME ranking		0.76	0.94	0.80	0.93	0.66	0.86	0.81	0.75	Average rank range			11

Notes: The sample is collected from all active and inactive US firms trading on the NYSE, AMEX, NASDAQ exchanges and all other over-the-counter stocks (OTCBB, Pink Sheets, and “Other-OTC”) sourced from the Research Insight database. Results are formulated as in Table 1.

Table 3. Equal-weighted excess monthly returns of GICS sorted industry groups regressed on the Fama–French three-factor model. June 1999 to May 2007, (n = 96)

$$Rpt-Rft=a+b[\text{R}mt-\text{R}ft]+s\text{SMB}t+h\text{HML}t+et$$

BE/ME rank	GICS industry group	Code	Median BE/ME	a	b	s	h	t(a)	t(b)	t(s)	t(h)	R^2
1	Pharmaceuticals, etc.	3520	0.25	1.59	0.92	1.55	−0.68	(2.49)^*	(3.80)^*	(4.51)^*	(−2.96)^*	0.69
2	Health care equipment and services	3510	0.41	0.82	0.84	0.94	0.25	(1.86)	(6.61)^*	(6.62)^*	(1.92)	0.62
3	Software and services	4510	0.42	1.22	1.49	0.90	−0.84	(1.72)	(10.21)^*	(4.45)^*	(−3.49)^*	0.72
4	Household and personal products	3030	0.44	0.64	0.66	0.55	0.25	(1.26)	(5.04)^*	(4.30)^*	(1.33)	0.35
5	Telecommunication services	5010	0.50	0.62	1.27	0.71	−0.37	(1.03)	(7.00)^*	(4.39)^*	(−1.92)	0.63
6	Technology hardware and equipment	4520	0.50	1.03	1.55	1.17	−0.47	(1.93)	(9.10)^*	(6.32)^*	(−2.94)^*	0.80
7	Media	2540	0.51	−0.11	1.12	0.48	−0.05	(−0.22)	(9.59)^*	(3.50)^*	(−0.36)	0.62
8	Energy	1010	0.52	1.49	0.97	0.48	0.80	(2.55)^*	(5.50)^*	(2.86)^*	(4.41)^*	0.32
9	Food, beverage, and tobacco	3020	0.56	0.56	0.50	0.45	0.53	(1.79)	(7.25)^*	(5.43)^*	(5.16)^*	0.37
10	Commercial services and supplies	2020	0.58	0.40	0.93	0.61	0.34	(0.93)	(10.96)^*	(5.62)^*	(2.66)^*	0.55
11	Utilities	5510	0.59	0.18	0.60	0.22	0.75	(0.67)	(7.02)^*	(3.43)^*	(8.61)^*	0.51
12	Capital goods	2010	0.62	0.85	0.99	0.58	0.37	(2.26)^*	(11.56)^*	(5.57)^*	(2.96)^*	0.65
13	Food and staples retailing	3010	0.62	−0.08	0.78	0.44	0.59	(−0.24)	(8.52)^*	(4.75)^*	(4.80)^*	0.50
14	Banks	4010	0.65	0.45	0.38	0.22	0.48	(1.98)	(7.59)^*	(2.95)^*	(6.31)^*	0.38
15	Materials	1510	0.65	0.30	1.08	0.53	0.72	(0.89)	(14.17)^*	(5.30)^*	(6.50)^*	0.66
16	Retailing	2550	0.66	0.21	1.07	0.60	0.42	(0.40)	(9.63)^*	(3.55)^*	(2.15)^*	0.48
17	Diversified financials	4020	0.67	1.05	0.98	0.53	0.19	(2.48)^*	(9.98)^*	(4.96)^*	(1.44)	0.59
18	Consumer services	2530	0.67	0.55	0.78	0.62	0.53	(1.39)	(8.71)^*	(5.59)^*	(3.55)^*	0.50
19	Transportation	2030	0.69	0.31	1.12	0.45	0.66	(0.63)	(8.95)^*	(3.34)^*	(4.34)^*	0.52
20	Real estate	4040	0.74	0.52	0.42	0.37	0.50	(1.86)	(7.32)^*	(5.11)^*	(5.83)^*	0.42
21	Automobiles and components	2510	0.74	−0.37	1.09	0.55	0.67	(−0.69)	(8.98)^*	(3.89)^*	(3.82)^*	0.46
22	Consumer durables and apparel	2520	0.79	0.05	0.99	0.54	0.57	(0.12)	(11.45)^*	(4.70)^*	(4.27)^*	0.59
23	Insurance	4030	0.83	0.28	0.77	0.18	0.63	(1.14)	(11.84)^*	(2.63)^*	(7.83)^*	0.62
Pearson correlation with Median BE/ME			−0.64	−0.23	−0.73	0.70
t-Stat.			(−2.82)^*	(−1.05)	(−3.15)^*	(3.07)^*

Notes: Industry t-statistic use heteroskedasticity-consistent errors.

^* t-Statistic significant at the 5% level.

Figure 1. Average annual percentage of GICS industry group stocks appearing in various BE/ME quintiles, June 1999 to May 2007 (n = 96).

Table 4. Average portfolio returns for stocks sorted by GICS industry sector and then 2 × 5 on size and BE/ME. June 1999 to May 2007, (n = 96)

			Below ME breakpoint of $491 million							Above ME breakpoint of $491 million
			Book to market equity							Book to market equity
Sector	GICS	BE/ME	LO	2	3	4	HI	HI-LO	t-Stat.	LO	2	3	4	HI	HI-LO	t-Stat.
Panel A: Monthly time series of portfolio returns
Health care	35	0.33	2.09	2.49	2.37	3.06	4.05	1.96	(3.45)^*	1.26	1.72	1.70	1.36	1.03	−0.24	(−0.20)
Info. Tech.	45	0.46	1.60	2.19	3.00	2.28	3.07	1.48	(2.41)^*	1.10	1.43	1.64	1.76	0.78	−0.31	(−0.39)
Energy	10	0.52	2.65	2.25	2.87	3.28	4.72	2.07	(2.23)^*	2.17	2.05	2.38	2.05	1.41	−0.76	(−0.82)
Cons. Staples	30	0.54	1.09	1.69	1.54	1.39	2.79	1.69	(2.35)^*	1.02	0.94	0.91	1.70	1.43	0.41	(0.17)
Industrials	20	0.63	1.24	1.62	1.76	1.92	2.44	1.20	(2.27)^*	1.01	1.35	1.24	1.23	0.61	−0.40	(−0.63)
Materials	15	0.65	0.93	1.73	0.62	1.62	2.55	1.62	(2.06)^*	1.10	1.49	1.24	1.89	2.38	1.27	(1.54)
Cons. Discr.	25	0.67	0.80	1.49	1.28	1.36	1.95	1.15	(2.62)^*	0.91	0.94	0.91	1.11	1.36	0.45	(0.93)
Financials	40	0.72	1.23	1.32	1.20	1.39	1.73	0.50	(1.00)	1.03	1.21	1.13	1.40	1.16	0.13	(0.34)
		Average	1.45	1.85	1.83	2.04	2.91	1.46		1.20	1.39	1.39	1.56	1.27	0.07
Pearson correlation: BE/ME with HI-LO returns								−0.74	(−2.69)^*						0.46	(1.26)
Panel B: Portfolio returns averaged across time
Health care	35	0.33	1.92	2.56	2.54	3.58	4.58	2.66	(4.51)^*	1.09	1.63	1.63	1.93	1.62	0.53	(0.64)
Info. Tech.	45	0.46	1.20	2.27	3.13	2.66	3.84	2.65	(2.32)^*	0.69	1.27	1.31	1.72	0.87	0.18	(0.12)
Energy	10	0.52	2.45	2.23	2.82	3.21	4.69	2.24	(2.29)^*	1.64	2.11	2.48	2.44	2.47	0.84	(0.86)
Cons. Staples	30	0.54	0.92	1.46	1.61	1.14	2.76	1.84	(2.88)^*	0.89	0.85	1.09	1.96	2.60	1.71	(1.29)
Industrials	20	0.63	1.28	1.45	1.73	1.84	2.29	1.01	(1.82)	1.01	1.41	1.31	1.46	1.14	0.13	(0.18)
Materials	15	0.65	1.08	1.76	0.69	1.37	2.39	1.31	(1.87)	1.22	1.56	1.26	1.18	2.44	1.21	(1.07)
Cons. Discr.	25	0.67	0.60	1.30	1.16	1.28	2.00	1.40	(2.52)^*	0.84	0.90	0.86	1.31	1.67	0.83	(1.30)
Financials	40	0.72	1.27	1.12	1.10	1.50	2.07	0.80	(1.85)	1.05	1.14	1.10	1.43	1.45	0.40	(1.24)
		Average	1.34	1.77	1.85	2.07	3.08	1.74		1.05	1.36	1.38	1.68	1.78	0.73
Pearson correlation: BE/ME with HI-LO returns								−0.93	(−6.03)^*						0.08	(0.21)

^* t-Statistic significant at the 5% level.

Table 5. Average January returns and average monthly returns excluding January for sector portfolios sorted 2 × 5 for size and BE/ME. June 1999 to May 2007

	Book to market quintiles (BE/ME)
	LO			2			3			4			HI
Panel A: Small Stocks
Sector	January	11 Mos.	Difference	January	11 Mos.	Difference	January	11 Mos.	Difference	January	11 Mos.	Difference	January	11 Mos.	Difference
Health care	11.56	1.04	10.51	12.48	1.66	10.82	11.80	1.69	10.11	13.47	2.68	10.79	16.51	3.50	13.02
Info. Tech.	19.04	−0.43	19.47	12.94	1.29	11.65	11.27	2.39	8.88	11.53	1.86	9.67	16.51	2.69	13.82
Energy	7.92	1.96	5.96	5.82	1.90	3.92	4.98	2.62	2.36	4.89	3.06	1.83	15.36	3.72	11.64
Cons. Staples	12.41	−0.12	12.52	4.76	1.16	3.60	7.75	1.05	6.70	4.69	0.82	3.87	11.62	1.96	9.67
Industrials	12.27	0.28	11.99	5.75	1.06	4.69	6.40	1.31	5.09	6.65	1.40	5.25	12.00	1.41	10.59
Materials	12.25	0.06	12.19	6.63	1.32	5.31	5.41	0.27	5.14	5.38	1.00	4.38	12.27	1.49	10.79
Cons. Discr.	12.54	−0.48	13.02	8.14	0.68	7.46	6.28	0.70	5.58	7.95	0.67	7.28	12.27	1.07	11.20
Financials	8.52	0.61	7.92	2.46	1.00	1.46	1.90	1.03	0.86	3.01	1.36	1.65	6.44	1.67	4.77
Average	12.06	0.36	11.70	7.37	1.26	6.11	6.97	1.38	5.59	7.20	1.61	5.59	12.87	2.19	10.69
t-Stat.			(8.28)^*			(4.82)^*			(5.16)^*			(4.65)^*			(11.04)^*
Panel B: Large Stocks
Health care	0.39	1.15	−0.76	0.98	1.69	−0.72	0.77	1.71	−0.93	2.68	1.86	0.82	2.05	1.58	0.47
Info. Tech.	6.64	0.15	6.49	1.25	1.28	−0.03	2.68	1.19	1.49	8.00	1.15	6.84	6.44	0.37	6.07
Energy	1.82	1.62	0.19	1.50	2.17	−0.67	2.89	2.44	0.45	0.16	2.65	−2.49	4.86	2.26	2.60
Cons. Staples	0.64	0.92	−0.28	−1.48	1.06	−2.55	0.19	1.17	−0.98	1.03	2.05	−1.02	10.30	1.90	8.40
Industrials	−0.17	1.12	−1.30	0.20	1.51	−1.31	0.06	1.42	−1.36	−0.33	1.63	−1.96	1.34	1.12	0.22
Materials	0.61	1.28	−0.67	1.30	1.58	−0.28	−0.12	1.39	−1.51	−1.41	1.42	−2.83	5.05	2.20	2.86
Cons. Discr.	1.30	0.80	0.50	0.92	0.90	0.01	1.00	0.85	0.16	1.01	1.33	−0.32	2.23	1.62	0.61
Financials	0.87	1.06	−0.19	−0.47	1.29	−1.76	−0.34	1.23	−1.57	−0.02	1.56	−1.58	0.27	1.55	−1.28
Average	1.51	1.01	0.50	0.52	1.44	−0.91	0.89	1.42	−0.53	1.39	1.71	−0.32	4.07	1.58	2.49
t-Stat.			(0.57)			(−2.86)^*			(−1.35)			(−0.29)			(2.16)^*

^* t-Statistic significant at the 5% level.

Table 6. Average monthly GICS industry sector portfolio returns for stocks sorted 2 × 5 on size and BE/ME, excluding returns for the month of January. June 1999 to May 2007, (n = 88)

			Below ME breakpoint of $491 million							Above ME breakpoint of $491 million
			Book to market equity							Book to market equity
Sector	GICS	BE/ME	LO	2	3	4	HI	HI-LO	t-Stat.	LO	2	3	4	HI	HI-LO	t-Stat.
Health care	35	0.33	1.04	1.66	1.69	2.68	3.50	2.45	(4.06)^*	1.15	1.69	1.71	1.86	1.58	0.43	(0.47)
Info. Tech.	45	0.46	−0.43	1.29	2.39	1.86	2.69	3.12	(2.74)^*	0.15	1.28	1.19	1.15	0.37	0.22	(0.13)
Energy	10	0.52	1.96	1.90	2.62	3.06	3.72	1.76	(1.89)	1.62	2.17	2.44	2.65	2.26	0.64	(0.61)
Cons. Staples	30	0.54	−0.12	1.16	1.05	0.82	1.96	2.08	(3.20)^*	0.92	1.06	1.17	2.05	1.90	0.99	(0.81)
Industrials	20	0.63	0.28	1.06	1.31	1.40	1.41	1.13	(1.89)	1.12	1.51	1.42	1.63	1.12	0.00	(0.00)
Materials	15	0.65	0.06	1.32	0.27	1.00	1.49	1.43	(1.89)	1.28	1.58	1.39	1.42	2.20	0.92	(0.76)
Cons. Discr.	25	0.67	−0.48	0.68	0.70	0.67	1.07	1.55	(2.65)^*	0.80	0.90	0.85	1.33	1.62	0.82	(1.17)
Financials	40	0.72	0.61	1.00	1.03	1.36	1.67	1.06	(2.81)^*	1.06	1.29	1.23	1.56	1.55	0.49	(1.44)
		Average	0.36	1.26	1.38	1.61	2.19	1.82		1.01	1.44	1.42	1.71	1.58	0.56
Pearson correlation: BE/ME with HI-LO returns								−0.81	(−3.40)^*						0.22	(0.55)

^* t-Statistic significant at the 5% level.