Can any single industry — for example, the high-tech sector — assure investors above-average returns?
Detailed research into the sources of investment returns (Fama, Eugene F. and Kenneth R. French. “Industry Costs of Equity.” Journal of Financial Economics 43 (1997), 153-93.) concludes that industries, or companies’ products, are not a factor in expected stock returns. Industry effects can influence prices, but in a seemingly random, short-term way that can be mitigated in a diversified strategy. Therefore, industry effects, though they pose risks that are worth taking into account, are not a primary variable on which to sort securities for investment purposes. Firms developing new technologies have no assurance of earning above-average long-run profits. The competitive forces in a free market work constantly to disperse the benefits of innovation throughout the economy. The retailer using new high-speed computers to cut inventory costs, for example, may reap greater economic rewards than the company who developed them. And if competition pressures the retailer to pass the resulting s
Related Questions
- To be of value to a client, does a strategic planner have to be experienced in the clients type of business or industry sector?
- Can any single industry — for example, the high-tech sector — assure investors above-average returns?
- Can any single industry—for example, the high-tech sector—assure investors above-average returns?
