Asset pricing and energy consumption risk. (30th July 2019)

• Record Type: Journal Article
• Authors: Lim, Ashley; Lan, Yihui; Treepongkaruna, Sirimon
• Is Part Of: Accounting and finance. Volume 60:Number 4(2020)
• Page Start: 3813
• Page End: 3850
• Publication Date: 2019-07-30
• Subjects: Asset pricing -- Consumption‐based capital asset pricing model (CCAPM) -- Energy consumption; Accounting -- Periodicals; Finance -- Periodicals; 657.05
• DOI: 10.1111/acfi.12516
• Languages: English
• ISSNs: 0810-5391

Abstract

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.