We study the relationship between the energy exposure of European and US listed firms and the performance of their stock prices to assess to what extent the latter reflect the widening differentials in energy prices between the two regions, as a result of the war in Ukraine. The objective is to investigate whether stock prices contain information about the potential implications for the competitiveness of European companies due to the higher cost of energy inputs.
Given the same level of initial exposure to energy costs, US firms have outperformed European firms in terms of returns after the onset of the conflict, thanks to their access to relatively cheaper energy inputs. As this result has persisted also since the partial normalization of European gas prices in the spring of 2023, investors seem to anticipate that the comparative advantages relating to energy input costs between the two regions will remain.
Published in 2023 in: Finance Research Letter, v. 58, Article 104604.
