Working Paper: NBER ID: w22914
Authors: Erik Gilje; Robert Ready; Nikolai Roussanov
Abstract: We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that $3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.
Keywords: Shale Oil; Asset Pricing; Employment Growth
JEL Codes: G12; G13; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shale mimicking portfolio (G11) | increase in aggregate U.S. equity market capitalization (G10) |
| exposure to shale technology (L71) | employment growth rates (O49) |
| shale discovery announcement return (Q35) | average annual return (G17) |