Detecting, characterizing, and predicting arbitrage opportunities in international rights issues

Capital increases through the issuance of subscription rights are a financing tool employed by many companies as an alternative to debt issuance. In a process with numerous implications for both the company itself and the financial markets, market anomalies, such as arbitrage opportunities, may arise. To examine whether this issue occurs, a sample of 2583 capital increases carried out by companies located in 27 different countries was collected, and a strategy aimed at exploiting potential discrepancies between the prices of newly issued shares and existing ones was applied. The returns obtained will be subjected to various statistical and econometric tests to explain which factors may play a significant role in their formation. The results confirm the presence of these market anomalies and indicate that a higher proportion of new shares relative to existing ones increases the likelihood of these anomalies, whereas their occurrence appears to be weaker or absent when the company is listed on a stock index. These and other minor or control factors (the objective of the process or the economic sector of the firm) enable a high success rate in predicting when such anomalies are likely to form. These findings provide relevant information to all economic agents involved on how to mitigate these market anomalies.