Firm-specific industries, volatility, and return: A text-based network industrial classification approach

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This study finds that the firm-specific industry of the text-based network industrial classification (TNIC) is a key driver of return volatility and abnormal return. Rationally, firm-specific industries provide a unique set of competitors that share more fundamentals than those from fixed industrial classifications. The TNIC return volatility is positively associated with higher firm volatility. It also explains the abnormal returns not captured by the six-factor asset-pricing model of Fama and French. Finally, this study explores asset-pricing implications by examining a long position in stocks with high TNIC volatility and a short position in stocks with low TNIC volatility. This long-short investment strategy delivered significant and positive non-factor-related returns that are higher than the same investment strategy applied to fixed industrial classifications such as Standard Industrial Classification and Fama and French classification.

Original languageEnglish
Pages (from-to)184-196
Number of pages13
JournalJournal of Portfolio Management
Issue number8
Publication statusPublished - Aug 2021


  • Factor-based models
  • Performance measurement
  • Quantitative methods
  • Security analysis and valuation
  • Statistical methods

ASJC Scopus subject areas

  • Accounting
  • General Business,Management and Accounting
  • Finance
  • Economics and Econometrics


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