The Predictive Power of Industrial Electricity Usage Revisited: Evidence from Non‐Parametric Causality Tests

14 Pages Posted: 18 Sep 2018

See all articles by Matteo Bonato

Matteo Bonato

University of Johannesburg - Department of Economics and Econometrics; Valdon Group GhmB

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance; Economic Research Forum (ERF)

Rangan Gupta

University of Pretoria - Department of Economics

Date Written: June 2018

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.

Suggested Citation

Bonato, Matteo and Demirer, Riza and Gupta, Rangan, The Predictive Power of Industrial Electricity Usage Revisited: Evidence from Non‐Parametric Causality Tests (June 2018). OPEC Energy Review, Vol. 42, Issue 2, pp. 93-106, 2018, Available at SSRN: https://ssrn.com/abstract=3250911 or http://dx.doi.org/10.1111/opec.12119

Matteo Bonato (Contact Author)

University of Johannesburg - Department of Economics and Econometrics ( email )

P.O. Box 524
Auckland Park 2006, Johannesburg
South Africa

Valdon Group GhmB ( email )

Zurich
Germany

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance ( email )

Department of Economics & Finance
Alumni Hall 3144
Edwardsville, IL 62026-1102
United States
(618) 650-2939 (Phone)
(618) 650-3047 (Fax)

HOME PAGE: http://www.siue.edu/~rdemire/

Economic Research Forum (ERF)

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg/affiliates/riza-demirer-3/

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

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