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Capital Utilization and Stock Returns
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Capital Utilization and Stock Returns

Abstract

Aggregate capital utilization, as inferred from electricity usage, forecasts realized stock returns in accordance with a simple production-based asset pricing model. Capital utilization contains information not captured by typical forecast variables such as valuation ratios, Treasury bill rates, default spreads and term spreads. Out-of-sample results imply that a mean-variance investor with a risk aversion parameter of three can increase her portfolio return by 5.1% per year by using the information inherent in capital utilization.

Authors

Gu L; Balvers RJ; Huang D

Publication date

January 1, 2013

DOI

10.2139/ssrn.2208736

Preprint server

SSRN Electronic Journal
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