The Relationship Between Beta and Arbitrage Spread in M&A Deals
Abstract
Risk arbitrage is an event-driven investment strategy where the risk arbitrageur aims
to capture the arbitrage spread between the target’s stock price and the bid price by
the acquiring firm in a merger and acquisition (M&A) deal. Previous research suggests
that specific risks connected to the deal as completion or duration risks, as well as
firm and bid characteristics, influence the arbitrage spread. We contribute to the risk
arbitrage literature by investigating whether a firm’s beta (β) influences the arbitrage
spread and the risks connected to the deal. The study is achieved through conducting
a regression analysis measured on an international sample of 673 observations from
1995-2022. The results do not document any significant relationships between beta,
arbitrage spread, and the days to resolution. The target beta was, however, found
positively significant with the successful deal variable, and several control variables in
the study revealed interesting effects, which brings a more recent contribution to the
risk arbitrage literature and a valuable input for risk arbitrageurs around the world.
Degree
Master 2-years
Other description
MSc in Finance
Collections
View/ Open
Date
2023-06-29Author
Granat, Daniel
Fredriksson, William
Series/Report no.
2023:210
Language
eng