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An intra- and inter-industry evaluation of three classification schemes common in capital market research

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We compare the Standard Industry Classification (SIC), the North American Industry Classification System (NAICS) and the Global Industry Classification Standard (GICS) schemes in their effectiveness to group stocks with similar operating characteristics. We are the first to analyse and compare individual functional category levels within and across each industry classification and test whether the three industry classifications show significant improvement in homogeneity with finer industry partitions across a wide range of research applications. Our results suggest that the GICS system offers advantages over the other two systems in grouping firms across all its levels of industry categories and across different application schemes common to capital market research. However, the SIC and NAICS offer additional advantages across their finest industry partitions. Our study has important implications for users of industry classifications in various financial and economic analyses, research settings and regulatory contexts.
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Keywords: C15; G10; GICS; homogeneity; industry classification; performance

Document Type: Research Article

Affiliations: 1: Beedie School of Business, Simon Fraser University, Burnaby, V5A 1S6, Canada 2: Sauder School of Business, University of British Columbia, Vancouver, V6T 1Z2, Canada

Publication date: 2014-06-13

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