Asset Pricing Models and the Performance of European Energy Indices ()
ABSTRACT
In
this paper, we analyze the abnormal returns of European Energy indices and the factor loadings based
on the well-known Fama
and French three-factor (FF3) and five-factor (FF5) models. We extend this
methodology by introducing one more
factor, a European volatility index (VSTOXXt) to the FF3 and FF5 methodologies and we use data from Refinitiv Eikonovera period lasting from 2010 to 2023. The
econometric findings indicate that Energy indices do not produce significant
alphas, verifying literature studies on negative excess returns. Observations
also show medium betas, indicating a medium level of systematic risk.
Furthermore, we notice sufficient
evidence that the European Energy Indices tilt to large cap, value stocks,
robust operating profitability, and low-risk investment strategies. Lastly, the performance and the validity of adding an
extra determinant factor on both the FF3 and FF5
models resulted in a novelty finding of volatility
tilting and dispersion of returns bias on European Energy portfolios. Robustness tests of a
complementary index, (MSCI), obtain the same results. This paper contributes to the growing empirical literature
on Fama and French
three-factor and five-factor models and provides additional insight for
academics, policymakers, and investors.
Share and Cite:
Galyfianakis, G. (2024) Asset Pricing Models and the Performance of European Energy Indices.
Theoretical Economics Letters,
14, 417-430. doi:
10.4236/tel.2024.142022.
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