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Forecasting M&A deals with MIDAS count model

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Abstract

This report focuses on the forecast of the number of monthly cross-border deals in the European Union. We propose a new model to improve the forecasting properties of a count model of Foreign Direct Investment deals in EU, by taking into account past trends in high-frequency (daily) deal data and the decomposition of the conditional overdispersion into short-term and long-term components. Our model relies on the dynamic behaviour of the first two moments of the distribution of FDI deals to explain the evolution of parameters η and π in the Negative Binomial distribution. We test this model with several subsets of M&A deals from 1998 to 2021 obtaining sizable forecast improvements as compared to benchmark INGARCH models

Suggested Citation

  • : Ojea Ferreiro, Javier & : Gregori, Wildmer Daniel & : Nardo, Michela, 2022. "Forecasting M&A deals with MIDAS count model," JRC Working Papers in Economics and Finance 2022-15, Joint Research Centre, European Commission.
    • Handle: RePEc:jrs:wpaper:202215
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    File URL: https://joint-research-centre.ec.europa.eu/publications/forecasting-ma-deals-midas-count-model_en
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    Keywords

    M&A forecasting; MIDAS approach; count process; overdispersion;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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