It's a bit heavy on the math for a typical undergrad or non-quant-jock, but well worth discussing in an investments class. My take on the article (at least as far as using it in the classroom) is that it provides pretty interesting evidence that economic fundamentals matter, and that markets are forward looking. Yeah, I know - these aren't new findings. But since I'm teaching CFA, I've been talking a lot about "fundamentals" (it's a big emphasis in the program). So it's been on my mind.
We investigate whether the returns of industry portfolios predict stock market movements. In the US, a significant number of industry returns, including retail, services, commercial real estate, metal, and petroleum, forecast the stock market by up to two months. Moreover, the propensity of an industry to predict the market is correlated with its propensity to forecast various indicators of economic activity. The eight largest non-US stock markets show remarkably similar patterns. These findings suggest that stock markets react with a delay to information contained in industry returns about their fundamentals and that information diffuses only gradually across markets.