Is There Smart Money? How Information in the Commodity Futures Market Is Priced into the Cross-Section of Stock Returns with Delay

We document a new empirical phenomenon in which the positions of money managers (MM), who are sophisticated speculators in the commodity futures market, as disclosed by the CFTC Disaggregated Commitments of Traders (DCOT) reports, can predict the cross-section of commodity producers' stock returns in the subsequent week. We employ cross-sectional methodologies including single-sort, Jensen's alpha analysis, double-sort, and Fama-Macbeth regressions to confirm the predictability results. Our results are not driven by the announcement effects of the DCOT reports. The results are more pronounced in firms with higher information asymmetry, proxied by analyst dispersion and historical volatility. We thus provide more empirical evidence to the literature on investor specialization, market segmentation, informational friction and gradual information diffusion, since it is costly to acquire and process information and as a result investors do not specialize in all assets