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Industrial Electricity Usage and Stock Returns

  • Zhi Da, Dayong Huang and Hayong Yun
Abstract

The growth rate of industrial electricity usage predicts future stock returns up to 1 year with an R 2 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.

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Copyright
Corresponding author
* Da, zda@nd.edu, Mendoza College of Business, University of Notre Dame; Huang, d_huang@uncg.edu, Bryan School of Business and Economics, University of North Carolina at Greensboro; and Yun (corresponding author), yunha@bus.msu.edu, Eli Broad College of Business, Michigan State University.
Footnotes
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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.
Footnotes
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