IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0411002.html
   My bibliography  Save this paper

Risk Arbitrage-U.S. Financial Markets

Author

Listed:
  • Supreena Narayanan

    (Stockholm School of Economics)

Abstract

This paper analyses risk arbitrage in U.S. financial markets. The study by Mitchell, Mark and Todd Pulvino (2001) has been extended to study the U.S. financial markets scenario from 1963 to 2004. In particular, two research questions are pursued-(1) What are the effects of stock market, business conditions as well as the Merger and Acquisition Trend on risk arbitrage activities in the U.S (2) What is the current trend and effect of the U.S. financial regulatory mechanism on risk arbitrage? The results of the paper are: 1)Returns associated with risk arbitrage are more pronouncedly decreased in down/severely depreciating stock market and business conditions especially when there is possibility of deal failure but remain rather uncorrelated with market returns when the market is flat and appreciating. 2)The probability of a merger failing is a decreasing function of market returns in the last two months, indicating that deals are more likely to fail following market downturns. 3)There has also been a growing trend in US financial market regulatory mechanism to reduce systemic risk, eliminate legal uncertainty, control regulatory arbitrage and to have a closer look on derivatives trading which could be potentially used for fraud or manipulation. The current focus of the financial regulatory mechanism is to curb illegal trading in risk arbitrage activities through limits on trading volume and control of regulatory arbitrage opportunities which should continue into the future.

Suggested Citation

  • Supreena Narayanan, 2004. "Risk Arbitrage-U.S. Financial Markets," Finance 0411002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0411002
    Note: Type of Document - doc; pages: 53
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0411/0411002.pdf
    Download Restriction: no
    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0411/0411002.ps.gz
    Download Restriction: no
    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0411/0411002.doc.gz
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Larcker, David F. & Lys, Thomas, 1987. "An empirical analysis of the incentives to engage in costly information acquisition : The case of risk arbitrage," Journal of Financial Economics, Elsevier, vol. 18(1), pages 111-126, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arouri, Mohamed & Gomes, Mathieu & Pukthuanthong, Kuntara, 2019. "Corporate social responsibility and M&A uncertainty," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 176-198.
    2. Lys, Thomas & Vincent, Linda, 1995. "An analysis of value destruction in AT&T's acquisition of NCR," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 353-378.
    3. Francesca Cornelli & David D. Li, 2002. "Risk Arbitrage in Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 837-868.
    4. Krishnan Maheswaran & Soon Chin Yeoh, 2005. "The Profitability of Merger Arbitrage: Some Australian Evidence," Australian Journal of Management, Australian School of Business, vol. 30(1), pages 111-126, June.
    5. Elizabeth Blankespoor & Ed Dehaan & John Wertz & Christina Zhu, 2019. "Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs," Journal of Accounting Research, Wiley Blackwell, vol. 57(1), pages 53-84, March.
    6. Armstrong, Christopher S. & Balakrishnan, Karthik & Cohen, Daniel, 2012. "Corporate governance and the information environment: Evidence from state antitakeover laws," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 185-204.
    7. Cornelli, Francesca & Li, David Daokui, 1998. "Risk Arbitrage in Takeovers," CEPR Discussion Papers 2026, C.E.P.R. Discussion Papers.
    8. Supreena Narayanan, 2004. "Risk Arbitrage in U.S. Financial Markets," Finance 0411001, University Library of Munich, Germany.
    9. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    10. Beunza, Daniel & Stark, David, 2012. "From dissonance to resonance: cognitive interdependence in quantitative finance," LSE Research Online Documents on Economics 45604, London School of Economics and Political Science, LSE Library.
    11. Ferguson, Michael F, 1994. "Ownership Structure, Potential Competition, and the Free-Rider Problem in Tender Offers," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 35-62, April.
    12. Matt Glendening & Inder K. Khurana & Wei Wang, 2016. "The market for corporate control and dividend policies: Cross-country evidence from M&A laws," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(9), pages 1106-1134, December.
    13. Buehlmaier, Matthias M. M. & Zechner, Josef, 2016. "Financial media, price discovery, and merger arbitrage," CFS Working Paper Series 551, Center for Financial Studies (CFS).
    14. Anthony Ravi & Peter Mayall & John Simpson, 2012. "Takeover Probabilities and the Opportunities for Hedge Funds and Hedge Fund Replication to Produce Abnormal Gains," Palgrave Macmillan Books, in: Greg N. Gregoriou & Maher Kooli (ed.), Hedge Fund Replication, chapter 4, pages 48-60, Palgrave Macmillan.
    15. Louis, Henock, 2005. "Acquirers' abnormal returns and the non-Big 4 auditor clientele effect," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 75-99, December.
    16. Ahn, Hee-Joon & Cao, Charles & Choe, Hyuk, 2001. "Share repurchase tender offers and bid-ask spreads," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 445-478, March.
    17. Supreena Narayanan, 2004. "Risk Arbitrage In U.S. Financial Markets," Finance 0410017, University Library of Munich, Germany.
    18. Balachandran, Balasingham & Faff, Robert, 2015. "Corporate governance, firm value and risk: Past, present, and future," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 1-12.
    19. Stefan Eichler & Dominik Maltritz, 2013. "An options-based approach to forecast competing bids: evidence for Canadian takeover battles," Applied Economics, Taylor & Francis Journals, vol. 45(34), pages 4805-4819, December.
    20. Das Chaudhury, Ratul & Bhattacharya, Sukanta, 2023. "When to seek expert advice? A simple model of borrowers with limited liability," Mathematical Social Sciences, Elsevier, vol. 125(C), pages 113-120.

    More about this item

    JEL classification:

    • G - Financial Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0411002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.