Risk arbitrage in the Nordics

Abstract

This paper examines the existence of risk arbitrage in the Nordic market. The study includes 182 public cash offers from 2007 to 2016, and three differently weighted risk arbitrage portfolios consisting of Norwegian, Swedish, Danish and Finnish transactions. The risk arbitrage investment strategy is benchmarked with the CAPM, Fama-French Three-factor with and without a liquidity factor. When benchmarked on the European market returns, the valueweighted risk arbitrage portfolio generates annual excess returns of 6%, the equal-weighted generates 12% and the practitioner arbitrage portfolio 4%. However, when benchmarked on the Nordic market index, the portfolios do not generate excess returns. Contrary to most of the previous research on risk arbitrage, these results lead to the conclusion that there are no excess returns in Nordic risk arbitrage.