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On the Oil Price Uncertainty

Zied Ftiti and Fredj Jawadi

Year: 2019
Volume: Volume 40
Number: Special Issue
DOI: 10.5547/01956574.40.SI2.zfti
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Abstract:
This study focuses on oil price volatility and uncertainty over the period January 1986-December 2018, covering episodes of oil price increases and collapses. Accordingly, in line with Poon and Granger (2003), and Terasvirta and Zhao (2011), we propose three different specifications of stochastic oil volatility: standard stochastic volatility, stochastic volatility moving average, leverage stochastic volatility models. We compute the out-of-sample forecasts for the uncertainty in oil prices using the estimates for these three stochastic oil price volatility models and we discuss its effects. Our findings show that the standard stochastic volatility model outperforms the other two models when focusing on oil price uncertainty. This finding is relevant to better forecast and understand the effects of oil price uncertainty on the real economy.



Oil Price Uncertainty and M&A Activity

Samuel D. Barrows, Magnus Blomkvist, Nebojsa Dimic, and Milos Vulanovic

Year: 2023
Volume: Volume 44
Number: Number 4
DOI: 10.5547/01956574.44.4.sbar
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Abstract:
This study examines the impact of oil price uncertainty on mergers and acquisition (M&A) activity in the oil and gas sector. Analyzing this industry enables us to construct a natural forward-looking measure of oil price uncertainty, namely the implied crude oil volatility. Using a sample of U.S. firms in the oil and gas sector from 1994-2018 containing 4,323 announced transactions, we document that oil price uncertainty is negatively related to future M&A activity. Uncertainty is mainly a driver of horizontal and vertical M&A activity, where upstream firms are more affected by this uncertainty than downstream firms. Our results lend support to a real options explanation of investment under uncertainty where firms choose to defer investments as a response to increased uncertainty.



Oil Price Uncertainty and IPOs

Magnus Blomkvist, Nebojsa Dimic, and Milos Vulanovic

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.mblo
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Abstract:
We examine the impact of oil price uncertainty on IPO volume in the oil and gas sector. By using the implied volatility of oil options, a forward-looking uncertainty measure, we identify the effect of uncertainty on the going-public decision. Oil price uncertainty exhibits a strong negative relation to IPO volume. A one standard deviation decrease in the implied volatility results in a 29% increase in the number of quarterly IPOs. The effect is concentrated among the price-sensitive upstream producers. We further report that uncertainty positively impacts the IPO withdrawal decision and increases the value of postponing the offering.





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