The dynamics of returns on renewable energy companies: A state-space approach

The renewable energy sector has accomplished remarkable growth rates over the last decade. This paper examines the dynamics of excess returns for the WilderHill New Energy Global Innovation Index, which lists firms in the renewable energy sector and is used as a global benchmark. We propose a multi-...

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Bibliographic Details
Published in:Energy economics 2015-03, Vol.48, p.325-335
Main Authors: Inchauspe, Julian, Ripple, Ronald D., Trück, Stefan
Format: Article
Language:English
Subjects:
Abnormal returns
Asset pricing
Assets
CAPM
Crude oil prices
Economic conditions
Economic crisis
Energy economics
Energy industry
Energy sector
Finance
Growth rate
Growth rates
Indexes
Oil price
Prices
Renewable energy
Renewable energy sources
Renewable resources
State-space models
Stock market
Stocks
Studies
Technology
WilderHill New Energy Global Innovation Index
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Summary:The renewable energy sector has accomplished remarkable growth rates over the last decade. This paper examines the dynamics of excess returns for the WilderHill New Energy Global Innovation Index, which lists firms in the renewable energy sector and is used as a global benchmark. We propose a multi-factor asset pricing model with time-varying coefficients to study the role of energy prices and stock market indices as explanatory factors. Our results suggest a strong influence of the MSCI World index and technology stocks throughout the sample period. The influence of changes in the oil price is significantly lower, although oil has become more influential from 2007 onwards. We also find evidence for underperformance of the renewable energy sector relative to the considered pricing factors after the financial crisis. •We examine the dynamics of excess returns for renewable energy companies.•We propose a multi-factor asset pricing model with time-varying coefficients.•We study the impact of energy prices and stock market indices on renewables.•Our findings suggest a strong influence of the MSCI World index and technology stocks on renewable energy stocks.•We find evidence for underperformance of the renewable energy sector since 2009.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2014.11.013