Energy price uncertainty and the value premium |
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| Affiliation: | 1. Department of Accounting, Economics and Finance, School of Business, Law and Entrepreneurship, Swinburne University of Technology, Melbourne, Australia;2. Department of Accounting, Data Analytics, Economics and Finance, La Trobe University, Melbourne, Australia;3. School of Economics, Finance and Marketing, RMIT University, Melbourne, Australia;1. School of Statistics and Mathematics, Central University of Finance and Economics, Beijing 100081, China;2. School of Finance, Central University of Finance and Economics, Beijing 100081, China;1. School of Social Audit, Nanjing Audit University, Nanjing, China;2. School of Accounting, Economics and Finance, Curtin Business School, Perth, Australia;3. Department of Finance, National Taiwan University, No.1, Sec 4, Roosevelt Rd, Taipei City 10617, Taiwan |
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| 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%. |
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