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Oil Returns and Volatility: The Role of Mergers and Acquisitions

Martijn Bos (), Riza Demirer (), Rangan Gupta () and Aviral Tiwari ()
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Martijn Bos: Tilburg School of Economics and Management (TISEM), Tilburg University, Tilburg, the Netherlands

No 201775, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper provides a novel perspective to the oil-stock market nexus by examining the predictive ability of mergers and acquisitions (M&A) over West Texas Intermediate (WTI) oil returns and volatility using a nonparametric quantile-based methodology. Our findings suggest that M&A activity carries significant predictive power over oil return and volatility, while predictability displays remarkably distinct patterns across various quantiles representing normal, bull and bear market states. We also observe that M&A activity by oil firms, i.e. both the acquiring and target firms considered active in the oil and gas (O&G) industry, generally carries greater predictive power over both oil returns and volatility compared to M&A activity by non-oil acquirers, i.e. acquirers that have entered the O&G industry by buying an oil company. Our findings imply that M&A activity in the O&G industry carries valuable fundamental information regarding future expectations on oil price dynamics and should be taken into account in forecasting exercises.

Keywords: Oil Returns and Volatility; Mergers and Acquisitions; Oil and Gas Industry; Nonparametric Quantile Causality (search for similar items in EconPapers)
JEL-codes: C22 C58 Q31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2017-10
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