Electricity usage predicts stock direction: Paper

Traders work on the floor of the New York Stock Exchange.
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As an investor, it pays to know about power.

That's not just for deciding which oil stocks to play or whether now is the time when alternative energy can generate real returns.

Instead, tracking simple electricity usage is a helpful predictor in discerning broader market movements, according to a research paper released this month by a team of academic researchers.

"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," wrote the team of Zhi Da at the University of Notre Dame, Dayong Huang at the University of North Carolina and Hayong Yun at Michigan State University.

What they found specifically, when looking over data from 1956 to 2010 in the U.S., Japan and U.K., is that each 1 percent increase in electricity usage corresponds to a 0.92 percent decline across broad stock market measures, including the , over the next year.