Abstract
This paper proposes energy consumption in the US as a new measure for the consumption capital asset pricing model. We find that (i) industrial energy growth produces reasonable values for the relative risk aversion coefficient and the implied risk-free rate; (ii) compared to alternative consumption measures, industrial energy performs well in explaining the cross-sectional variation in stock returns with the lowest implied risk aversion and pricing errors; (iii) the industrial energy consumption risk model performs equally well as the Fama-French three-factor model in the cross-sectional asset pricing tests; and (iv) total energy consumption risk is priced in the presence of the Fama-French factor risks.
Original language | English |
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Pages (from-to) | 3813-3850 |
Number of pages | 38 |
Journal | Accounting and Finance |
Volume | 60 |
Issue number | 4 |
Early online date | 30 Jul 2019 |
DOIs | |
Publication status | Published - Dec 2020 |