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Industrial Electricity Usage and Stock Returns

Posted by nexvucapital on April 30, 2015

Tracking simple electricity usage is a helpful predictor in discerning broader market movements, according to a paper released this month by a team at the University of Notre Dame.

“Simple year-over-year industrial electricity usage growth rate has strong and significant predictive power for future stock market excess returns in horizons ranging from one month up to one year,” wrote the team led by Zhi Da and including Dayong Huang and Hayong Yun.

What they found specifically, when looking over data from 1956 to 2010 in the U.S., Japan and U.K., is that each 1 percent increase in electricity usage corresponds to a 0.92 percent decline across broad stock market measures over the next year.

Electricity usage predicts stock direction: Paper

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