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Energy price uncertainty and the value premium

Mardy Chiah, Dinh Phan (), Vuong Thao Tran and Angel Zhong

International Review of Financial Analysis, 2022, vol. 81, issue C

Abstract: This paper examines the impact of energy price uncertainty on a range of value anomalies. We demonstrate that the value premium is substantially stronger in periods of heightened energy price uncertainty. Energy price uncertainty exerts an asymmetric effect on the value anomalies, whereby downside energy price uncertainty accentuates the return differences between value and growth stocks compared to upside energy uncertainty. These findings are consistent with the argument that value firms possess a larger amount of inflexible assets than growth firms. Therefore, they struggle more to adjust in periods of elevated energy price uncertainty. We also demonstrate that energy price uncertainty has predictive power on the value premium one-month ahead. Using the Feasible Generalized Least Squares predictive model, energy price uncertainty can help mean-variance investors to obtain a positive annual utility gain across the value anomalies for up to 16.71%.

Keywords: Energy price uncertainty; Stock market anomalies; Value premium (search for similar items in EconPapers)
JEL-codes: G12 O13 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.irfa.2022.102062

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