Asset Pricing Models and the Performance of European Energy Indices — Oak Academic Publishing
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Asset Pricing Models and the Performance of European Energy Indices
Department of Accounting and Finance, School of Management and Economic Sciences, Hellenic Mediterranean University, Heraklion, Greece
,
Laboratory of Accounting and Financial Management (LAFIM), Department of Accounting and Finance, Hellenic Mediterranean Uni-versity, Heraklion, Greece
1 Department of Accounting and Finance, School of Management and Economic Sciences, Hellenic Mediterranean University, Heraklion, Greece
2 Laboratory of Accounting and Financial Management (LAFIM), Department of Accounting and Finance, Hellenic Mediterranean Uni-versity, Heraklion, Greece
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 ( VSTOXX t ) 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, w e 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.
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