This column originally appeared on Real Money Pro at 8:20 a.m. EST on Feb. 21.
NEW YORK (Real Money) -- This week Jim "El Capitan" Cramer and I have been going back and forth on the investment ramifications of the heightened M&A activity. (Jimmy brought up our fracas and dueling views during Tuesday night's "Mad Money" episode.)
Yesterday I published a detailed analysis that suggested that retail investors' inflows into domestic equity funds do not lead stock prices -- indeed, there is nearly no correlation.Today I undertake (with the assistance of Seabreeze analysts Nick Pollari and Kelley Hopkins) another exercise and deep dive that suggest to us that, historically, rising levels of takeover activity (what Jim calls "the urge to merge") do not statistically correlate to a new leg of higher stock prices. We used data of the S&P 500 annual returns from 2001 to 2012 with the dollar value of M&A activity and came up with the conclusion that there is little correlation:
- The correlation between the volume ($B) of North American deals with annual S&P 500 returns is a low 0.5029.
- The R-squared between annual S&P 500 returns and the volume ($B) of North American deals is an even lower 0.253.
- The adjusted R-squared between annual S&P 500 returns and the volume ($B) of North American deals (including a one-year lag) is a statistically insignificant 0.296.
- The adjusted R-squared between annual S&P 500 returns and the volume ($B) of global deals (including a one-year lag) is also a low 0.307.
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