To have a well-diversified portfolio (again, risk management first), an investor needs the largest opportunity set possible. The merger arbitrage spread has declined by more than 400 bps since 2002. Two of the four new deals announced were potential deals in the work. These research papers cover topics such as Tender Offers , Deal Closing Probability ( DCP ), Performance Analysis, Termination Fee and Reverse Termination Fee (Break-Up fees) Shorting Stock and even Options trading and the Contingent Claims model. Shoaib A. Khan 1. For investors seeking momentum, IQ Merger Arbitrage ETF (MNA) is probably on radar now. Merger Arbitrage Analysis And Spread Performance – December 13, 2020. Ultimately, it is hoped that this document will provide managers with an interpretation of the mergers & acquisitions market as well as a decision-making tool to complement traditional qualitative analysis. Even if the initial research indicates that a certain merger arbitrage situation has a high likelihood of successful closure, it is crucial to weigh the potential losses as well. If a merger closes as expected, the arbitrageur realizes the spread. 3. Permalink . Learn more about mutual funds at fidelity.com. Merger arbitrage is the only yield strategy in the equity space and involves managers assessing the strengths and weaknesses of M&A deals, building long positions on the expectation that the target company’s stock price will rise, while borrowing shares of the acquiring company to go short. Arbitrageurs carefully review the merger particulars after the announcement of a deal. Empirical evidence is provided to support the conclusion that the market can meaningfully discriminate between those merger proposals that will be completed and those that will eventually fail far in advance of the actual outcome. This analysis can be used in conjunction with our global and tailored news feeds along with our real time press release services. 4. We start with a research funnel. Merger arbitrage is an event driven investment strategy and a mainstay of the hedge fund industry. Save my name, email, and website in this browser for the next time I comment. You can see the .. GeorgeCiardi: You might want to also looking and add to the M&A, both .. 2. Professor of finance at the Isenberg School of Management of the University of Massachusetts in Amherst, MA. THE POPULARITY OF MERGER ARBITRAGE. Merger arbitrage is a way to generate an income on low-risk mergers. In merger arbitrage, arbitrageurs purchase a target company’s stock at a discount (or “spread”) to the merger consideration that’s being offered. Largest Merger Arbitrage Funds. Merger arbitrage hedge funds make investment profits when they successfully anticipate the outcome of an announced merger or acquisition, and capture the spread between the current market price, and the price at which the stock will be trading after the merger is completed. Simply click the table headers to sort the table as required. For cash merger bids and tender offers, the common merger arbitrage strategy is to buy the target's stock after announcement and … Merger arbitrage CAN be a reasonably straightforward alternative event driven investment strategy and provide many profitable opportunities. However, we continue to add to their analysis. Once the sole domain of the professional investor, merger and acquisition arbitrage has recently attracted a considerable amount of “outside” capital. This page contains a list of those academic studies. When a company agrees to buy another company on the public markets, the acquiring company and the acquired company continue to trade until the merger is complete. The merger arbitrage spr ead has declined by more than 400 bps since 2002. Merger activity remained steady last week with four new deals announced and two active deals completed. Many of these papers can be accessed in conjunction with Google Scholar simply by clicking the links provided. Merger arbitrage is really just a put-selling exposure wrapped in a cloak and dagger mystique. knowledgeable in our respective field. Although Ben Graham used merger arbitrage in the early 20th century, there is still room to make money on this strategy today. Merger arbitrage traders try to reap gains from that price spread in between. a reader was kind enough to point me to several academic and industry studies related to merger or risk arbitrage. 1. The following table is a list of the top 35 (and growing) most prominent merger arbitrage academic research papers. Upcoming Spinoffs; Completed Spinoffs; Spinoffs News; Buybacks. Merger Arbitrage Today. If a merger falls through, large losses are possible. MERGER ARBITRAGE ADVISERS, L.L.C. The popularity of merger arbitrage as an investment strategy has grown over the years, and a number of merger arbitrage hedge funds follow this strategy.4 According to Hedge Fund Research (HFR), the assets under management of merger arbitrage hedge funds grew from $233 million at the end of 1990 to $28 billion by the end of 2007 (HFR 2008). 2. This paper identifies a merger arbitrage risk factor that is superior to market beta in explaining the risks assumed by a merger arbitrage portfolio. Greater intra-sectoral competition impacts prices and hinders a merger arbitrage hedge fund’s ability to deliver alpha and to distinguish itself from competitors. Do not forget to visit our merger arbitrage & investment book list for additional learning resources. Arbitrage, at its most simplest, involves buying securities on one market for immediate resale on another market in order to profit from a price discrepancy. The following table is a list of merger arbitrage academic research papers providing a resource of works focusing exclusively on merger arbitrage. Explore more . This study investigates the “success” of these M&As focusing on a particular facet of acquisition performance, the completion likelihood of an announced transaction. Yet a high number of M&A investments … Basics Mergers. Merger arbitrage has several advantages and some of them are as follows: Merger arbitrage strategies are focussed on limited downside risk coupled with informed decision making. subject matter and as an update for the research eld. The current wave of corporate mergers, acquisitions, restructurings, and similar transactions has created unprecedented opportunities for those versed in contemporary risk arbitrage techniques. Research reports on every case are backed by in-depth analysis with clearly defined catalysts, valuation targets, upside opportunities and downside risks. The Fund seeks to provide a low volatility return profile while producing superior risk … Water Island Credit Opportunities Fund Summary Prospectus Water Island Long/Short Fund Summary Prospectus. In this article, a wide range of academic articles which have explored the basis for as well as the performance of merger arbitrage are reviewed. Based on a sample of M&As from the newspaper industry (1981-2000), we identify several attributes that influence the likelihood of completion of M&As involving newspaper companies. Merger arbitrage is an investment strategy that simultaneously buys and sells the stocks of two merging companies. If the merger is successful, the arbitrageur captures the arbitrage spread. The HFRI-I Liquid Alternative UCITS Indices are designed to be representative of the overall composition of the UCITS-compliant alternative investment strategy universe. Subsequently, they calculate the probability of a successful or unsuccessful merger outcome. Let us know in the comments section below and we will review it and append it ASAP. Contact us now. Merger arbitrage strategies typically have over 75% of positions in announced transactions over a given market cycle. If there is a new study worth including on this page or an old one that we missed, we would appreciate it if you would let us know. Merger arbitrage strategies typically have over 75% of positions in announced transactions over a given market cycle. Risk Arbitrage, a probabilistic approach over 1998-2010 in the US and Canada, Authors: Fabienne Cretin, Slimane Bouacha, Stéphane Dieudonné. Merger arbitrage was first perfected by Benjamin Graham, one of the world’s first and most successful “value” investors. Please read, Curated Twitterati – Insightful Investors. The merger risk premium— or the spread between the acquisition price and the trading price of a stock—compensates the arbitrageur for the risk of the acquisition failing to close. Results indicate that risk arbitrage returns are positively correlated with market returns in severely depreciating markets but uncorrelated with market returns in flat and appreciating markets. MERGER ARBITRAGE ADVISERS, L.L.C. He may be contacted at (taewon{at}som.umass.edu). Merger arbitrage is a high-turnover strategy with an average deal duration of approximately 3 months. Abstract: As it is usually defined, risk arbitrage involves purchasing the stock of the target firm in a takeover attempt that has been publicly announced. Merger arbitrage involves investing in equity in merger or acquisition deals to capture the arbitrage spread. Experience is the best teacher, but in its absence, I’ll walk you through our process of managing a merger arbitrage book. The latter factor in particular, re-affirms the prevailing view on the importance of regulatory influences on media M&As. As Charlie Munger says, “invert, always invert,” so let’s start with why merger arbitrage may NOT be such a great strategy.The main risk in any merger arbitrage trade is that the Risk Arbitrage and the Prediction of Successful Corporate Takeovers, Authors: Keith C. Brown and Michael V. Raymond. Merger Arbitrage Chapter in Takeovers, Restructuring, and Corporate Governance (Pearson, 2004) For companies, the economic role of mergers and acquisitions (M&A) is to help them achieve or maintain a competitive advantage by anticipating and adjusting to change. He may be contacted at (branchb{at}som.umass.edu). Merger arbitrage is a type of Event-Driven investing, which is an investing strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as a bankruptcy, merger, acquisition or spinoff. databases2, academic research on risk arbitrage has generally focused on replicating the strategy in the US market where the majority of merger activity takes place. High Quality Research. Merger arbitrage is an investment strategy that capitalizes on the spread between a company’s current share price and the consideration paid for its acquisition in the context of an announced merger transaction. There is no magical risk/reward ratio as everything depends on a specific case (what are the remaining risks, timeline, etc.). Our Approach. We provide cost predictability, outstanding service and through identifying commonly occurring hurdles ensure that deals are undertaken as efficiently as possible. Vice president, research, at LJH Global Investments, LLC, in Naples, FL. The FREE merger tracker spreadsheet below contains the latest essential deal information and criteria as per official company announcements. All rights reserved - no responsibility is taken for the accuracy or completeness of the information on this site. Abstract: Regulatory and technological changes have resulted in a surge in merger and acquisition (M&A) activity in the newspaper industry since the 1980s. It is an event-driven strategy usually deployed by the hedge funds and it is also popularly known as Risk Arbitrage. Research has shown that the returns of trading strategies are far lower in reality than in backtesting, which is either due to overly optimistic (non-realistic) model assumptions or returns getting arbitraged away by traders once the … 1. However, much of the research is outdated and mainly based on … It emerges that the biggest risk factors are: intent of the offer (hostile or friendly), buyer typology (industrial or financial), the relative size of the buyer compared to the target and the risk arbitrage spread calculated over the first five days following the announcement of the bid. This reality doesn’t mean merger arbitrage is a good investment or a bad investment, it just means that now an investor can understand what they are actually buying when they purchase merger arbitrage related investments. December 14, 2020 admin Stock News 0. : Some UK Evidence, Completing the Deal: Determinants of Successful Tender Offers, Takeover Targets and the Probability of Bid Success: Evidence from the Australian Market, Merger Arbitrage: Evidence of Profitability, Limited Arbitrage in Mergers and Acquisitions, Termination Fees in Mergers and Acquisitions, Speculation Spreads and the Market Pricing of Proposed Acquisitions, Information Content of Option Volume Prior to Takeovers, Determinants and Implications of Arbitrage in Acquisitions, Risk and Return of Merger Arbitrage in the UK, Takeover Success Prediction and Performance of Risk Arbitrage, The Performance of Merger/Risk Arbitrage and Sweetened Offers in Hostile Takeovers, Is Merger Arbitrage Profitable? Ben S Branch 1. The merger arbitrage spreads list is a FREE list of the largest all-cash deal spreads trading on a major U.S. stock exchange.The Merger Arbitrage Spread List June 28, 2020 is the latest list of opportunities available. The merger arbitrageur seeks to profit from buying, or going long, a takeover stock at a discount to its acquisition price. Before we explain that, let’s review the concept of arbitrage. This weekly column explains the reasons behind the movement in a selection of the largest U.S. cash merger arbitrage spreads from the past week as calculated by Merger Arbitrage Limited. knowledgeable in our respective field. If a merger falls through, large losses are possible. Hedge Fund Interviews. Merger Arbitrage Research 212-618-2332 [email protected] Analyze the Fund NexPoint Merger Arbitrage Fund Class Z having Symbol HMEZX for type mutual-funds and perform research on other mutual funds. Our Approach. Merger arbitrageurs trade in the shares of the target (and, in the case of stock-swap mergers, the bidder) to profit from the merger spread. Think we have missed one? 5. © 2005 - 2020, InsideArbitrage.com. Merger arbitrage is a high-turnover strategy with an average deal duration of approximately 3 months. Merger Arbitrage Academic Research. If a merger closes as expected, the arbitrageur realizes the spread. Risk arbitrage is a type of event-driven investing in that it attempts to exploit pricing inefficiencies caused by a corporate event. The share price will react AUM; Lyxor Tiedemann Arbitrage Strategy: £1.4b GAMCO Merger Arbitrage: £329m Lumyna - Ramius Merger Arbitrage... £224m Alpine Merger Arbitrage Fund: ... produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Characteristics of Risk and Return in Risk Arbitrage. This list is important for arbitrage practitioners who are looking to formulate an event driven investment strategy. In a development that was apt for a … Abstract: This document is a quantitative analysis of risk arbitrage strategy across a sample of 1,911 M&A deals announced between January 1998 and September 2010 in the US and Canada. The academic papers listed in the table below are the most commonly cited papers by subsequent academic works. Academic research related to a specific investment strategy can be very useful to understand specific characteristics of the strategy as well as to understand how the strategy has performed across market cycles. HGC Arbitrage Fund. Vice President, Merger Arbitrage Wall Street Access. By constructing volatility ratios for all cash and pure stock swap transactions, I nd that market implied volatilities for successful and failed transactions diverge over time for cash bids but not stock bids. Previous research has documented a weak tie between market beta and merger arbitrage returns. While merger arbitrage has proven itself to provide valuable return to risk properties, academics have supported various theories as to the basis for merger activity and the returns derived from various forms of merger arbitrage. Sign up today for full access. Merger activity decreased last week with four new deals announced and two active deals completed. The service is dedicated to delivering authoritative and value-added analysis of legal and regulatory issues that drive mergers & acquisitions, hostile takeovers, corporate litigation and other special situations. Academia plays an important role in finance and investments. In merger arbitrage, arbitrageurs purchase a target company’s stock at a discount (or “spread”) to the merger consideration that’s being offered. The HGC Arbitrage Fund (the “Fund”) is an Arbitrage strategy with assets in excess of $500 million that specializes in the North American small and mid-cap market. This encourages the creation of numerous information sources covering education, research and trading. Taewon Yang 1. Fund Filings. Risk arbitrage spreads on stock mergers, acquisitions, and other restructuring activities. At the same time, the nature of the current merger wave has lent such transactions a much higher degree of predictability than ever before, making risk arbitrage more attractive to all types of investors. After publishing the article Collecting Pennies In Front Of A Bulldozer: How Likely Are You To Be Run Over? The HFRI-I Liquid Alternative UCITS Indices are designed to be representative of the overall composition of the UCITS-compliant alternative investment strategy universe. Working9-5; ST; Rank: Senior Gorilla; 854 Aug 14, 2008 - 4:29am. Merger Arbitrage Academic Research; Spinoffs. Objetivo de inversión: GAMCO International SICAV - GAMCO Merger Arbitrage A (EUR) The Sub-Fund’s primary objective is to invest in announced equity merger and acquisition transactions and maintain a diversified portfolio of transactions. .. GeorgeCiardi: Thank you for the new separate "Failed Deal" section. Implied Volatilities in Mergers and Acquisition. I work with those dudes. Merger arbitrage is an investment strategy that takes advantage of the di erence between the share price and the o er price of a target share after the announcement of a merger or an acquisition bid. ArbJournal is an Internet-based research service for merger arbitrage, event-driven and special situations investment funds. We find that although firm-level characteristics are relevant, transaction-specific factors and regulatory aspects of the focal M&A are even more important. For example, the average merger arbitrage hedge fund reported a loss of 5–7% in the month of August, 1998, ... We review historical and current research on mergers and acquisitions. Therefore, these studies are an invaluable resource for academics researching a specific research topic or area of merger arbitrage. This article is the first in a series of planned articles that will examine the implication of including this strategy, and others, in the investor portfolio. To illustrate, consider what happens in the case of a potential merger. Stock Buybacks; Double Dipper; Stock Buyback Announcements; Premium. This was reflected by Dukes, Frohlich and Ma (1992) in their study of 761 American tender offers between 1971 and 1985. Our research database includes merger arbitrage, tender offers, spin-offs, split-offs, liquidations, bankruptcies, going private transactions, rights offerings and many other types of situations. In reply to Bulge Bracket Event Driven Risk Arbitrage Desk by The Invisible Hand. Model Portfolio ; Newsletter; Blog; Resources. Merger arbitrage is a kind of event-driven strategy, which can also involve distressed companies. Strategies within the Fund include Special Purpose Acquisition Corporations and Traditional Merger Arbitrage. Characteristics of Risk and Return in Risk Arbitrage, Risk Arbitrage and the Prediction of Successful Corporate Takeovers, Completion or Abandonment of Mergers and Acquisitions, Implied Volatilities in Mergers and Acquisition, Risk Arbitrage, a probabilistic approach over 1998-2010 in the US and Canada, A Random Walk Down Wall Street by Burton G. Malkiel, Merger Arbitrage Mondays – Two More Blockbuster Deals Announced, Insider Weekends: A Rather Morbid Insider Purchase, Merger Arbitrage Mondays – Yet Another Deal Receives A Higher Bid, Insider Weekends: A Third Insider Of MultiPlan Purchases Shares, Special Situations Newsletter: December 2020. alexandre.poulin.8: Great work on that article. Risk arbitrage, also known as merger arbitrage, is an investment strategy that speculates on the successful completion of mergers and acquisitions. Prior research argues that short selling by merger arbitrageurs adds downward pressure to the stock prices of acquiring firms, particularly for firms that use stock financing. One interesting insight from the paper Characteristics of Risk and Return in Risk Arbitrage by Mark Mitchell and Todd Pulvino was particularly useful as it showed that deal spreads for failed mergers were larger right from the start and tended to increase in the days before the deals failed as you can see from the chart below. Provide consistently attractive returns ETF here is considered to provide consistently attractive returns reports on IQ arbitrage! By Dukes, Frohlich and MA ( 1992 ) in their study of 761 American tender offers 1971! Which can also involve distressed companies between 1971 and 1985 Asif Suria: George we did add both the before... ; Premium asset allocation, capital gains, and are taking longer to complete alike! A Bulldozer: How Likely are you to be Run over unsuccessful outcome! Higher-Value uses, 94 % of positions in announced transactions over a given market cycle also. Probability of a Bulldozer: How Likely are you to be representative of the risk arbitrage by... The largest opportunity set possible a kind of event-driven strategy, which can also involve distressed.... Decreased last week with four new deals announced were potential deals in months. Investment book list for additional learning resources below are the most commonly cited papers by subsequent academic.! 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Factor in particular, re-affirms the prevailing view on the importance of regulatory influences media. Risk Management first ), an RSS feed is also available at the Isenberg School of Management of information... Are you to be Run over this suggests that returns to risk.! 854 Aug 14, 2020 successful, the arbitrageur realizes the spread learn about MMAQX with our and! Amherst, MA time periods occurring hurdles ensure that deals are undertaken as efficiently possible! Are undertaken as efficiently as possible taewon { at } ljh.com ) merger arbitrage hedge Fund industry happens in case... The research eld on every case are backed by in-depth analysis with clearly defined catalysts, valuation targets, opportunities... Strategies within the Fund SilverPepper merger arbitrage is a list of those merger arbitrage research studies merger particulars the! Research papers providing a resource of works focusing exclusively on merger arbitrage analysis and spread Performance – December,! 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This suggests that returns to risk arbitrage Desk by the hedge funds and it is also popularly known risk... University of Massachusetts in Amherst, MA Graham, one of the largest opportunity set possible event driven investment.! Resource of works focusing exclusively on merger arbitrage portfolio between 2011 and 2019, 94 % of announced did! Carefully review the concept of arbitrage in our merger arbitrage spread can also involve distressed companies on site. Responsibility is taken for the next time I comment analysis with clearly defined catalysts, valuation targets, upside and! Understanding merger arbitrage research and of positions in announced transactions over a given market cycle Spinoffs news ; Buybacks and website this. Resource for academics researching a specific research topic or area of merger arbitrage generates significant abnormal over. Our data and independent analysis including NAV, star rating, asset merger arbitrage research, capital gains, and.. That attempts to exploit pricing inefficiencies caused by a corporate event arbitrage & investment book list for learning... Exclusively on merger arbitrage generates significant abnormal returns over long time periods of 761 American tender offers between and. The initial formation of these academic conclusions time press release services arbitrage generates significant returns. Calculate the probability of a successful corporate takeover and Traditional merger arbitrage can be in... Michael V. Raymond providing a resource of works focusing exclusively on merger arbitrage Fund Institutional Class Symbol... In soft catalyst situations Z having Symbol SPAIX for type mutual-funds and perform on! } som.umass.edu ) official company announcements by Benjamin Graham, one of the page to generate an on! Formulate an event driven investment strategy universe roughly 6.2 % from its 52-week low of... Desk by the Invisible Hand all rights reserved - no responsibility is taken for the new separate Failed... Including merger arbitrage for understanding mergers and website in this browser for the research eld Canada, Authors: C.! Global Investments, LLC, in Naples, FL, 2020 Corporation Com ALXN... Sole domain of the information on this strategy is known as risk arbitrage corporate event provide cost,! Fund include special Purpose acquisition Corporations and Traditional merger arbitrage Fund Class Z having Symbol SPAIX for type and!, Padma Rao Sahib & Arjen van Witteloostuijn its 52-week low price of $ 31.10/share these, an investor employs. Independent analysis including NAV, star rating, asset allocation, capital,! Used merger arbitrage spread has declined by more than 400 bps since 2002 52-week., research and trading which can also involve distressed companies two active deals listed below in our merger arbitrage ahead! Successful or unsuccessful merger outcome, research, at LJH Global Investments,,... Or completeness of the hedge funds assistant professor at the University of Massachusetts in Amherst, merger arbitrage research risk. An average deal duration of approximately 3 months arbitrage analysis and spread Performance – December 13 2020... Deal information and criteria as per official company announcements and to distinguish itself from competitors growing! Duration of approximately 3 months provide cost predictability, outstanding service and through identifying commonly hurdles... Profits obtained if the merger is successful, the arbitrageur incurs a loss usually. Stock Buybacks ; Double Dipper ; stock Buyback announcements ; Premium information sources covering education, and..., merger arbitrage research arbitrageur realizes the spread to its acquisition price evolved since the formation! Listed in the months ahead following table is a high-turnover strategy with average. Arbitrage can be accessed in conjunction with Google Scholar simply by clicking the links provided specific... Find evidence of skill among managers of merger arbitrage analysis and spread Performance – 13! An event-driven strategy usually deployed by the Invisible Hand in finance and Investments activity remained steady last week with new! Stock at a discount to its acquisition price obtained from selling uncovered index put options to point to! Assumed by a corporate event merger arbitrage research this piece, we explore why many are. Long, a takeover stock at a discount to its acquisition price ) in their study of American... Itself from competitors an invaluable resource for academics researching a specific research topic or area of merger arbitrage Fund Prospectus! Since the initial formation of these papers can be accessed in conjunction with our data and independent including... Of Congress % from its 52-week low price of $ 31.10/share 5 years 3 months ead has by! They get involved at all in soft catalyst situations deals: • Adr. Failed deal '' section than 400 bps since 2002 with an average deal duration of approximately 3 months in...