Macroeconomic factors, firm-level financial characteristics and stock returns: the Case of the US energy

We examine the effects of macroeconomic factors and expected economic fundamentals derived from the Nelson-Siegel yield curve model on the equity returns of US energy firms, considering firm-specific financial characteristics. We find that producer price index (PPI), unemployment, real GDP, anticipated growth in long-run yields, expected monetary expansion, and WTI return have positive and significant effects on the returns. On the other hand, the effective federal funds rate, the inflation rate and expected economic recession negatively and statistically significantly affect the returns. The responses differ across firms, with smaller, financially constrained firms more sensitive to PPI growth, while larger firms respond more to oil price fluctuations. Portfolio analysis reveals that firms with lower credit quality exhibit procyclical patterns, whereas smaller firms consistently outperform across economic conditions.