Merger arbitrage : opportunities left for financial mavericks in the new millenium?

Abstract

This paper analyses 2 005 mergers and acquisitions in the period from 2000 to 2012 in order to investigate merger arbitrage excess return. 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. The analysis is based on a methodology of creating merger arbitrage portfolios to realistically replicate the returns possible to achieve for merger arbitrage professionals. To test the signi cance of the results, the returns are tested with the linear regression models CAPM and Fama-French. Finally, the paper also investigates the notion that a piecewise linear model might be a better tool for performance measurement of merger arbitrage.