Asset pricing and energy consumption risk

Research output: Contribution to journalArticlepeer-review

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 languageEnglish
Pages (from-to)3813-3850
Number of pages38
JournalAccounting and Finance
Volume60
Issue number4
Early online date30 Jul 2019
DOIs
Publication statusPublished - Dec 2020

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