In this paper, we examine the relationship between oil price and firm returns for 560 US firms listed on the NYSE. First, we find that oil price affects returns of firms differently depending on their sectoral location. Second, we find strong evidence of lagged effect of oil price on firm returns. Third, we test whether oil price affects firm returns based on different regimes and find that in five out of the 14 sectors this is indeed the case. Finally, we unravel that oil price affects firm returns differently based on firm size, implying strong evidence of size effects.

In this paper we study whether the commodity futures market predicts the commodity spot market. Using historical daily data on four commodities—oil, gold, platinum, and silver—we find that they do. We then show how investors can use this information on the futures market to devise trading strategies and make profits. In particular, dynamic trading strategies based on a mean–variance investor framework produce somewhat different results compared with those based on technical trading rules. Dynamic trading strategies suggest that all commodities are profitable and profits are dependent on structural breaks. The most recent global financial crisis marked a period in which commodity profits were the weakest.

We propose a panel data model of price discovery. We find that the stock market contributes to price discovery in most sectors while the Credit Default Swap (CDS) market contributes to price discovery in only a few sectors. We discover that in sectors where both the stock market and the CDS market contribute to price discovery, it is the stock market that dominates the price discovery process. When we consider investment grade stocks, the importance of the CDS market in price discovery improves but the stock market still dominates the price discovery process. The results for different sizes of stocks generally suggest that both markets are important for price discovery but it is the stock market that dominates. We also find that while the price discovery process was affected by the 2007 global financial crisis, the stock market still dominated the price discovery process. Finally, in an economic significance analysis, we show that investors in the CDS market are able to make relatively more profits from a forecasting model that takes into account price discovery compared to a model that simply ignores the role of price discovery.