RT Journal Article SR Electronic T1 Peer Pressure JF The Journal of Portfolio Management FD Institutional Investor Journals SP 80 OP 91 DO 10.3905/jpm.2006.628409 VO 32 IS 3 A1 Turan G. Bali A1 K. Ozgur Demirtas A1 Armen Hovakimian A1 John J.. Merrick, Jr YR 2006 UL https://pm-research.com/content/32/3/80.abstract AB Investment bankers focus on narrow industry-based peer groups for individual stock valuation, and some market-neutral equity hedge fund managers restrict portfolios to be sector-neutral. Despite the academic research that typically ignores industry effects, the evidence is that industry effects matter. Narrow industry-based peer groups improve stock valuation precision for three key valuation ratios. In a sample including the boom and bust period of the late 1990s, contrarian strategies were particularly profitable for Nasdaq-listed stocks. For the full sample of stocks, an industry-neutral strategy is better than an industry-exposed full universe strategy in Sharpe ratio terms over every horizon for each valuation ratio.TOPICS: Accounting and ratio analysis, equity portfolio management, portfolio construction