Kearney, P.,Hutchinson, M.,Cotter, D.;

2007

The Irish Accounting Review

RISK AND RETURN OF MERGER ARBITRAGE IN THE UK 2001 TO 2004. The Irish Accounting Review

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This paper replicates the core underlying merger arbitrage strategy using daily data from the United Kingdom to generate three simulated merger arbitrage portfolio return series, for the period 2001 through to 2004. Past empirical evidence indicates that the merger arbitrage strategy generates large risk adjusted returns. More recent evidence indicates that the strategy has a return distribution equivalent to a short put option on a stock index. These prior studies have generally focused on monthly returns in the North American stock markets. For the UK market we find evidence that the merger arbitrage strategy exhibits little systematic risk and generates significant risk adjusted returns. Contrary to prior research we find no evidence of an increase in systematic risk in depreciating equity markets. [PUBLICATION ABSTRACT]

07919638

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