Do Commodities Lead Stock Market Industries?

Abstract

This paper investigates whether the price changes in commodity futures can predict the stock price movements in US industries. Our estimated risk premia indicate that a large number of commodity futures do lead specific industry returns with up to five months of lag, suggesting that relevant information only gradually diffuses from commodities to relevant industries. Furthermore, we find that exploitative trading strategies that trade on the identified anomalies do not generate any abnormal returns, suggesting that the anomalies are efficiently eliminated from the market.