The international natural gas price and its cross-sectional pricing implication: Evidence from Chinese stock market

This study investigates the role of international natural gas returns in the cross-sectional pricing of Chinese stocks. We find that stocks with higher sensitivity to the Henry-Hub natural gas returns ( i.e., higher natural gas return beta) exhibit significantly lower future returns, suggesting a negative natural gas price risk premium. By exploring the underlying mechanism, we find that the results are consistent with the hedging demand theory that rational investors seek stocks with high potential to hedge against natural gas price risk but not driven by mispricing channel. Additionally, we demonstrate that the predictability of the Henry-Hub natural gas return beta for stock returns cannot be explained by other macro-betas, and this effect is primarily evident in manufacturing firms. However, we do not observe significant pricing effects from the Asian and European natural gas returns.