Electricity Consumption and Asset Prices

Abstract:     
Electricity consumption is a useful real-time proxy for economic activities, as most modern-day economic activities involve the use of electricity, which cannot be easily stored. Empirically, electricity consumption data is widely available in high frequency at both aggregate and disaggregate levels, allowing several interesting asset pricing applications. For example, we demonstrate that electricity usage is a better measure of spot consumption, as in the CCAPM, and that an electricity-based CCAPM does well in both time series and cross-sectional asset pricing tests. This result is not driven by electricity consumption due to production activities and extreme weather fluctuations. We also find that industrial usage of electricity, capturing business cycle variation in real time, predicts future stock excess returns at both market and industry level.

Number of Pages in PDF File: 57

Keywords: Consumption-based Capital Asset Pricing Model (CCAPM), electricity consumption, return predictability.

JEL Classification: G12, G17.

working papers series