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Electricity Usage is Predictor of Stock Market


Hayong Yun, associate professor of finance at the Eli Broad College of Business at Michigan State University, and a team of his colleagues, has shown that from 1956-2010 in the U.S., Japan, and the UK, each 1 percent increase in electricity usage corresponded to a 0.92 percent decline across the board in stock market measures.

“Tracking simple electricity usage is helpful as a directive in discerning market movements,” said Yun, who was joined in the research by Zhi Da at the University of Notre Dame, and Dayong Huang at the University of North Carolina.

“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,” the research team wrote.

Yun said it has only been recently that researchers have been making progress in using macroeconomic indicators to predict future stock market performance, and that this research went further, using high quality data from industrial electricity consumption.

Some of Yun’s earlier research looked at residential electricity and asset prices to explain household consumptions and expected return on assets.

- Terri Hughes-Lazzell via the Eli Broad College of Business website

- Photo by Alan Piñon

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