Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution

Erik Gilje, Robert Ready and Nikolai Roussanov

No 22914, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that $3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.

JEL-codes: G12 G13 Q43 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (8)

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