Working Paper Revision

Investing in the Batteries and Vehicles of the Future: A View Through the Stock Market

Abstract: A large number of companies operating in the EV and battery supply chain have listed on a U.S. stock exchange in recent years. I compile a unique data set of high-frequency stock returns for those companies and investigate the extent to which an “industry” factor specific to the EV and battery supply chain (an “EV” factor) can explain their returns. Those returns are decomposed into systematic and idiosyncratic components, with the former given by a set of latent factors extracted from a large panel of stock returns using high-frequency principal components. It is found that a market factor and a factor associated with tech stocks have good explanatory power for the stocks of interest. I identify an “EV” factor as the first principal component of the idiosyncratic returns and find it has relatively good explanatory power for EV and battery stocks, often exceeding that of the tech factor. There is also evidence for a lithium factor that plays an important role in the returns of lithium companies.

Keywords: stock returns; principal components; electric vehicles; batteries; high-frequency data;

JEL Classification: C55; G10; Q40;

https://doi.org/10.24149/wp2314r1

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2024-03-25

Number: 2314

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• Working Paper Revision: Investing in the Batteries and Vehicles of the Future: A View Through the Stock Market