Predicting Stock Returns with Industry Concentration

In order to predict stock returns more effectively, it has been proposed to use industry concentration as a benchmark. We want to verify whether this variable is significant today. In this paper, we first screen out some firms that may affect the results of the experiment, such as financial firms as well as some other small and micro firms. Then, we use the total assets and total sales of the firms separately to calculate their industry concentration. They are then divided into 10 portfolios from low to high based on their industry concentration. Their returns are then compared to their industry concentration to determine whether it is significant or not. The results show that industry concentration is not significant in predicting stock returns today. Possible reasons for this could be that the factor of industry concentration has been overused, or that the methodology of our calculations was not rigorous enough. In addition, the impact of the new crown epidemic cannot be ignored.