Commodity Price Exposure and Ownerhsip Clienteles
This paper examines the association between commodity price exposure and investor interest in stocks of firms in two commodity-based industries: Gold Mining, and Oil and Gas Exploration. Investors, on average, are attracted to commodity price exposure. Using market-based measures of commodity price exposure, there is robust evidence that commodity stocks with high commodity price exposures have higher turnover and a larger number of institutional investors, in particular mutual fund investors, than commodity stocks with low exposures. We conduct cross-sectional analysis that condition on the source of the exposure, the type of investor, and the performance of the underlying commodity. Overall, investors' revealed preferences for high exposure stocks appear to reflect a desire to gain exposure to the underlying commodity through an exposed equity security. They are not consistent with an attraction to exposure because of its transparency.
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