The predictive power of industrial electricity usage revisited : evidence from non‐parametric causality tests
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Date
Authors
Bonato, Matteo
Demirer, Riza
Gupta, Rangan
Journal Title
Journal ISSN
Volume Title
Publisher
Wiley
Abstract
Recent research shows that the industrial electricity usage growth rate carries predictive ability over stock market returns up to 1 year. Using the recently developed non‐parametric causality tests we show that the predictive power of industrial electricity usage can be explained by an ‘industry effect’ that is transmitted via the volatility channel. We argue that the countercyclical premium associated with industrial electricity usage growth is driven by the industry components that drive stock reversals, thus resulting in the negative relationship between today's industrial electricity usage and stock market returns in the future. The findings are in line with the notion that the returns on industry portfolios are informative about macroeconomic fundamentals and suggest that the informational value of industrial electricity usage as a business cycle variable may be an artefact of return reversals driven by past industry performance.
Description
Keywords
Industrial electricity, Electricity usage, Growth rate, Stock market returns, Non‐parametric causality test
Sustainable Development Goals
Citation
Bonato, M., Demirer, R. & Gupta, R. 2018, 'The predictive power of industrial electricity usage revisited: evidence from non‐parametric causality tests', OPEC Energy Review, vol. 42, no. 2, pp. 93-106.