Cross-border M&A Flows and EUR/SEK Exchange Rate Predictability

Sammanfattning

Exchange rate predictability remains one of the most persistent challenges in international economics, as traditional macroeconomic fundamentals consistently fail to explain currency movements. This is particularly relevant for small open economies such as Sweden, where firms are highly exposed to international trade and cross-border capital flows. Building on signaling theory and international business perspectives, this thesis examines whether abnormal cross-border mergers and acquisitions (M&A) activity contains predictive information about future EUR/SEK exchange rate returns. Using OLS regressions across four forecast horizons, the study analyzes quarterly cross-border M&A transactions involving Sweden and the Eurozone over 1999-2024, controlling for macroeconomic fundamentals. Abnormal M&A activity is measured through rolling-window Z-scores and separated into inbound and outbound flows to test for directional asymmetries. The results reveal that outbound M&A activity is the dominant predictor, with abnormally high Swedish outbound acquisitions associated with SEK depreciation against the euro at the two-year horizon. Inbound flows show no robust predictive power, and separating flow directions outperforms aggregated net measures, highlighting the importance of directionality. The study contributes to the exchange rate predictability literature by demonstrating that corporate investment decisions provide forward-looking signals beyond traditional macroeconomic indicators, and extends existing research to a small open economy context.