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Risk Arbitrage Related Scholarly Compositions
See also:
Risk Arbitrage
Related News,
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Books,
or
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Arbitrage Spreads and the Market
Pricing of Proposed Acquisitions
by Jan Jindra & Ralph A. Walkling
Ohio State University
June, 1999
Abstract
This paper examines arbitrage spreads and returns following
acquisition announcements in 362 cash tender offers spanning the
1981-1995 period. We document considerable abnormal returns to
risk arbitrage using various investment strategies, holding
periods, and benchmarks. Arbitrage spreads in acquisitions,
defined as the percentage difference between the bid price and
market price one day after the initial announcement, exhibit a
positive mean, with considerable cross-sectional variation...
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Determinants and Implications of
Arbitrage Holdings in Acquisitions
by Jim Hsieh & Ralph A. Walkling
Ohio State University
June, 1999
Abstract
This study investigates arbitrage activities and their impact on
acquisitions. The literature contains arguments for both passive
and active roles of arbitrageurs during the takeover process.
Larcker and Lys (1987) suggest that arbitrageurs are passive,
having superior ability to predict offer success...
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Limited Arbitrage in Mergers &
Acquisitions
by Malcolm Baker & Serkan Savasoglu
Graduate School of Business Administration, Hardvard University
April, 2000
Abstract
A diversified portfolio of risk arbitrage positions produces an
abnormal return of 0.6 –0.9% per month over the period from 1981
to 1996.We trace these pro fits to practical limits on risk
arbitrage. In our model of risk arbitrage, arbitrageurs'
risk-bearing capacity is constrained by deal completion risk and
the size of the position they hold...
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Merger Arbitrage: Profits,
Holdings, and Impact on The Takeover Process
by Jim Hsieh
September, 2001
Abstract
This research examines the role arbitrageurs play in the
takeover market and the relationship between arbitrage holdings
and realized returns to merger-arbitrage portfolios. The sample
consists of 680 offers spanning the 1992-1999 period and
includes 152 collar offers. We find that arbitrage holdings of
target shares are positively correlated with both the
probability of success and bid premia...
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A Microstructure Examination of
the Effect of Risk Arbitrage on the Trading in Acquiring Company
Shares in Stock Mergers
by Dr. Keith M. Moore, Dr. Gene C. Lai, & Dr. Zhiyi Song
St. John's University, Washington State University, & Van
Advisors
Abstract
This paper examines the changes that occur in the trading in the
acquiring company’s shares in stock mergers once the
transactions are announced. Using a two-year sample that
includes 13 million quotes and 15 million trades the impact of
short-selling by risk arbitrageurs on the microstructure of the
market in acquiring company shares is evaluated. The results
show that the process of risk arbitrage and the related
short-selling improves the efficiency of the market in the
bidder’s shares...
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Multi-Market Trading and
Arbitrage
by Louis Gagnon & G. Andrew Karolyi
Queen's University & Ohio State University
July, 2004
Abstract
This study investigates the differences in the prices of shares
of stocks that trade simultaneously in different markets around
the world. Specifically, we compare the synchronous, intraday
prices of American Depositary Receipts (ADRs) and other types of
cross-listed shares in U.S. markets relative to their
home-market shares on a currency-adjusted basis and examine the
magnitude of the deviations from parity, their persistence and
their systematic comovements with market indexes and currencies.
We provide evidence of the existence of such price deviations
for many of the almost 600 pairs of cross-listed shares from the
39 countries we study over the period between 1993 and 2002...
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Option Pricing with Liquidity
Risk
by U. Cetin, R. Jarrow, P. Protter, & M. Warachka
June 8, 2002
Abstract
This paper provides a model for pricing options in an economy
with liquidity risk. Liquidity risk is modeled as a stochastic
supply curve for the underlying stock that depends on the size
of a trade. Consistent with the market microstructure
literature, large buys increase the purchase price while large
sales decrease the selling price...
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Risk Arbitrage Performance for
Stock Swap Offers with Collars
by Ben Branch & Jia Wang
University of Massachusetts at Amherst
Abstract
Herein we investigate the risk return characteristics of risk
arbitrage for a sample
of 187 stock swap offers in the form of collars for the
1994-2003 period. Using cross sectional analysis, we find that
arbitrage spreads, defined as the percentage difference between
the offer price and the target market price after the merger
announcement, are significantly positively correlated with the
acquirer’s stock volatility and the deal duration. We also find
that arbitrage spreads are significantly lower for successful
deals than for failed deals; lower for challenged deals than for
unchallenged deals. Using time series analysis, we identify a
significant non-linear relationship in the risk return profile
for risk arbitrage portfolios: Both strategy I (long the target
for the fixed value collar offers; long the target and short the
acquirer for the fixed ratio collar offers) and strategy II
(delta hedging) produce returns that are strongly positively
correlated with the market return in a severely declining market
and are not significantly correlated with the market return in a
flat or rising market. Given the nonlinear payoff pattern,
linear asset pricing models tend to mis-estimate the magnitude
of excess returns. For strategy I, our samples produced an
estimated annual excess return of 6.3% when we used contingent
claims analysis as our base model. This estimated excess return
level is less than the 11.88% return when CAPM, or the 10.27%
return when Fama-French three factor models are assumed to be
the base model. For strategy II, assuming contingent claims
analysis as our base model produced an annual excess return of
22.7%. Using CAPM and Fama-French
models produced annual excess returns of 9.25% and 8.6%
respectively for our
sample of collar mergers.
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Risk Arbitrage Profits and the
Probability of Takeover Success
by Ben Branch, Huong Ngo Higgins, & Kathryn Wilkens
University of Massachusetts at Amherst & Worcester Polytechnic
Institute
January, 2003
Abstract
Prior literature shows that relative firm size, low firm
leverage, and relatively low growth can increase a firm's chance
of becoming a takeover target and increase the probability of
merger success. We show that adding information about analyst
coverage significantly improves models of merger success based
on financial variables that proxy for firm size, leverage, and
growth. The probability of merger success is inversely related
to analyst coverage at the time of the announcement...
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Risk Arbitrage in U.S. Financial
Markets
by Supreena Narayanan
Stockholm School of Economics
2004
Abstract
This paper analyses risk arbitrage in U.S. financial markets.
The study by Mitchell, Mark and Todd Pulvino (2001) has been
extended to study the U.S. financial markets scenario from 1963
to 2004. In particular, two research questions are pursued. What
are the effects of stock market, business conditions as well as
the Merger and Acquisition Trend on risk arbitrage activities in
the U.S...
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The Statistical Properties of
Hedge Fund Index Returns and their Implications for Investors
by Chris Brooks & Harry M. Kat
ISMA Centre
November 10, 2001
Abstract
The monthly return distributions of many hedge fund
indices exhibit highly unusual skewness and kurtosis properties
as well as first-order serial correlation. This has important
consequences for investors. We demonstrate that although hedge
fund indices are highly attractive in mean-variance terms, this
is much less the case when skewness, kurtosis, and
autocorrelation are taken into account. Sharpe Ratios will
substantially overestimate the true risk-return performance of
(portfolios containing) hedge funds. Similarly, mean-variance
portfolio analysis will over-allocate to hedge funds and
overestimate the attainable benefits from including hedge funds
in an investment portfolio. We also find substantial differences
between indices that aim to cover the same type of strategy.
Investors' perceptions of hedge fund performance and value added
will therefore strongly depend on the indices used.
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Takeovers, Freezouts, and Risk
Arbitrage
by Armando Gomes
The Wharton School, University of Pennsylvania
October, 2001
Abstract
This paper develops a dynamic model of tender offers in which
there is trading on the target's shares during the takeover, and
the bidders can freeze out target shareholders (compulsorily
acquire remaining shares not tendered at the bid price),
features that prevail on almost all takeovers. We show that
trading allows for the entry of arbitrageurs with large blocks
of shares who can hold out a freezeout-a threat that forces the
bidder to offer a high preemptive bid. There is also a positive
relationship between the takeover premium and arbitrageurs'
accumulation of shares before the takeover announcement, and the
less liquid the target stock, the strong this relationship is...
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Back to Scholarly Compositions
See also:
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