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Industrial Electricity Usage and Stock Returns

Published online by Cambridge University Press:  08 February 2017

Zhi Da ,
Dayong Huang  and
Hayong Yun
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Abstract

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The growth rate of industrial electricity usage predicts future stock returns up to 1 year with an R2 of 9%. High industrial electricity usage today predicts low stock returns in the future, consistent with a countercyclical risk premium. Industrial electricity usage tracks the output of the most cyclical sectors. Our findings bridge a gap between the asset pricing literature and the business cycle literature, which uses industrial electricity usage to gauge production and output in real time. Industrial electricity growth compares favorably with traditional financial variables, and it outperforms Cooper and Priestley’s output gap measure in real time.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 1 , February 2017 , pp. 37 - 69
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1 We thank Hendrik Bessembinder (the editor), Tom Cosimano, Bjorn Eraker, Wayne Ferson, Ravi Jagannathan, Bill McDonald, Stavros Panageas, Jesper Rangvid, Marco Rossi, Raman Uppal, Annette Vissing-Jorgensen, Jason Wei, Xiaoyan Zhang, and an anonymous referee for helpful comments. We thank Manisha Goswami, Steve Hayes, Dongyoup Lee, and Liang Tan for data support. Any errors are our own.

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