14. Industry Effects
The industry in which a company operates is a major determinant of its financial and market performance. Companies in different industries face different levels of competition, regulation, growth opportunities, and other uncertainties. As a result, the predictability of earnings and therefore the volatility of earnings announcement returns can vary greatly across different industries. For instance, all industries can be classified as either pro-cyclical or noncyclical based on their sensitivity to the health of the overall economy. The businesses of pro-cyclical industries, such as automobile manufacturers and airlines, are heavily influenced by business cycles. On the other hand, the noncyclical industries, such as supermarkets ...
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