Can energy security predict energy stock returns?

Bernard Njindan Iyke, Vuong Thao Tran and Paresh Kumar Narayan

Energy Economics, 2021, vol. 94, issue C

Abstract: We hypothesize that energy security contains valuable information that can predict energy stock returns. To test this hypothesis, we construct 10 energy security indexes and nine energy stock returns. We find that, at most, all 10 energy security indexes can predict returns. We further show that the return forecasts generated using the energy security indexes as a predictor are economically significant. A mean-variance investor is willing to pay a maximum of 4.88% per annum in extra portfolio management fees to access the additional information contained in return forecasts generated using the energy security indexes. These findings survive several robustness tests.

Keywords: Stock returns; Energy stocks; Energy security; Economic significance; Predictability (search for similar items in EconPapers)
JEL-codes: G12 G17 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:94:y:2021:i:c:s0140988320303923

DOI: 10.1016/j.eneco.2020.105052

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