Dependence and information flow among U.S technology industries

Abstract

ABSTRACT The technology sector serves as a fundamental pillar for all industry sectors in the economy, playing a central role in driving worldwide economic growth. It particularly distinguishes itself in the U.S., representing approximately one-third of the global technology market. However, the technology sector is not a homogenous group of similarly focused companies, its industries vary significantly in their characteristics. This paper analyzes the relationships among U.S. technology industries defined by the Global Industry Classification Standard using Vine copulas and transfer entropy. It spans 1 January 2010–31 January 2024, to clarify intra-sectoral heterogeneity and identify key industries predicting the performance of others. Our findings highlight the predictive power of the semiconductor industry, with significant information transmission to all other industries. Contrarily, the flow in the opposite direction is significant in only 3 of 5 cases. The identification of semiconductors’ central role is particularly valuable for both retail and institutional investors concentrating on technology stocks, as it may indicate future developments in the entire sector. Moreover, due to the industry’s global importance, shocks in the semiconductor industry could propagate across the entire technology sector, leading to broader economic instability. Therefore, the semiconductor industry should be closely monitored by the policymakers too.