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Pipeline Uncertainty and the Market Returns of Canadian Energy Firms

25 Pages Posted: 19 Nov 2015  

Elmira Aliakbari

University of Guelph - College of Business and Economics

Ross McKitrick

University of Guelph - Department of Economics

Date Written: October 29, 2015

Abstract

This study uses Event Study Analysis (ESA) to examine whether uncertainty over getting Alberta oil to market has affected the market valuation of Canadian energy firms. In recent years there have been a number of discrete news events pertaining to regulatory decisions that impact whether bitumen products from Alberta can get to market. The main examples are: the 2012 US Presidential election; the BC provincial election; the US administration decision on the Keystone pipeline; and the Canadian government decision on the Northern Gateway pipeline. In this study, we use weekly equity prices for Canadian energy firms, both energy services and oil producers, for the period January 2011 to March 2015 and assess the impact of seven recent events/ and or announcements on the equity returns of the energy firms. We employ the seemingly unrelated regression (SUR) model and analyze different hypotheses regarding the abnormal returns through joint tests. Our results show insignificant abnormal returns in all cases, which implies that there was no market reaction (on average) to any of the news events. Therefore, our empirical results would imply two plausible scenarios. First, the market fully anticipated the events and these events did not contain any significant new information. Second, even though these events/and or announcements contained new information, they did not change the investors’ expectations regarding future profitability and cash flow of Canadian energy firms.

Keywords: Pipelines, Keystone, Event Study Analysis, Uncertainty

JEL Classification: Q32, Q41, G14

Suggested Citation

Aliakbari, Elmira and McKitrick, Ross, Pipeline Uncertainty and the Market Returns of Canadian Energy Firms (October 29, 2015). Available at SSRN: https://ssrn.com/abstract=2692270 or http://dx.doi.org/10.2139/ssrn.2692270

Elmira Aliakbari

University of Guelph - College of Business and Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Ross McKitrick (Contact Author)

University of Guelph - Department of Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada
519-824-4120 ext 53051 (Phone)
519-763-8497 (Fax)

HOME PAGE: http://www.rossmckitrick.com/

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