Valuation in the energy sector: Fundamentals or bubbles?

Sofia Ramos and I-Chuan Huang
Authors registered in the RePEc Author Service: Helena Veiga

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: We analyze valuation in the energy sector using the present value model as a framework.Using a panel sample of sector indexes and firms from Canada, Japan, the United Kingdom,and the United States, we find only weak evidence that prices follow the fundamentals foroil explorers and producers subsector. A variance decomposition analysis shows that mostlyshocks in discount rates, seen as investor sentiment changes and not changes in cash flows,affect valuation. Further tests detect explosive bubbles on the exploration and productionsector in the United Kingdom and in integrated subsector for Canada in the late 1990'sand around 2005 that are driven by high prices. Overall, results cast doubt on the role offundamentals and favor more the importance of bubbles in driving valuation.

Keywords: Bubbles; Cointegration; With; Breaks; Dividend; Yield; Fundamental; Value; Oil; Industry; Present; Value; Panel; Cointegration; Panel; Unit; Root; Tests (search for similar items in EconPapers)
JEL-codes: G15 Q43 (search for similar items in EconPapers)
Date: 2020-10-05
New Economics Papers: this item is included in nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:31056

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