Journal of Energy Markets

While The Journal of Energy Markets has a strong focus on developing quantitative insights into the behavior of energy markets, the performance of companies in the energy sector is also a matter of substantial relevance. In this respect, the first paper of this issue, “Takeover likelihood in the oil and gas industry: firm-specific, macroeconomic or industry-specific causes?” by Bård Misund and Marius Sikveland, shows how industry-specific factors can be important determinants of takeover probability in the oil and gas industry. The authors find that oil price is negatively linked to takeover likelihood, implying that oil and gas companies change their investment policies in a low oil price environment: they lower their exploration investments and increase their acquisitions of other companies. In addition, the authors find that takeover likelihood is associated with other nonindustry metrics such as firm-specific return on equity, undervaluation (book-to-market ratio), expected stock market volatility (Chicago Board Options Exchange volatility index) and general stock market returns.

In the issue’s second paper, “The impact of unconventional monetary policy shocks on the crude oil futures market” by Tarek Chebbi, we see how West Texas Intermediate (WTI) crude oil price returns and volatilities respond to changes in US monetary policy. With daily data collected between 2008 and 2014, monetary policy shocks are measured as the changes in US ten-year government bond yields immediately after announcements about relevant events. Chebbi’s findings reveal that the crude oil market is highly reactive to these monetary policy surprises. As a rule, monetary policy surprises led to significant increases in oil price. In particular, this paper highlights the ways in which the magnitude of the oil market’s response depends on the period over which monetary policy may be influential.

Remaining on the theme of market shocks but moving from the oil sector to the power sector, our third and final paper, “The Nordic/Baltic spot electric power system price: univariate nonlinear impulse-response analysis” by Per B. Solibakke, provides an analysis of the conditional mean and volatility density characteristics of Nordic/ Baltic spot prices between 1993 and 2017. The focus of this new analysis of a very important market is on its nonlinear impulse-response to shocks. For the mean, this impulse-response analysis shows linear and symmetric mean reversion for any price movement. For the volatility, small price movements show symmetric, decreasing volatility. In contrast, for larger price movements, the volatility shows a nonlinear increase as well as increasingly negative asymmetries. With the substantial entry of renewables into the energy market in the subperiod between 2008 and 2017, systematic changes in the mean, volatility, asymmetry and persistence are evident.

Overall, these three papers – covering applications to oil, gas and power, and using advanced quantitative methods – provide a good balance in terms of both contexts and methodology for this issue of The Journal of Energy Markets.

Derek W. Bunn
London Business School

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