Summary of Merger Options and Risk Arbitrage

Federal Reserve Bank of New York,

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Merger Options and Risk Arbitrage summary
A targeted company’s options and stock pricing can reveal a great deal about the final outcome of a mergers and acquisitions deal.

Rating

7 Overall

7 Importance

10 Innovation

6 Style

Recommendation

Mergers and acquisitions of publicly traded companies are commonplace on Wall Street, however, not all deals make their way to the finish line. Many fall flat due to regulatory hurdles, financing complexities or valuation issues. Hedge fund managers and specialist traders use merger arbitrage to generate a profit based on the risk of a deal ultimately closing. Investors and analysts gauging the predictability of a corporate M&A success may find clues imbedded in the prices of the targeted stock as well as of its options, according to economist Peter Van Tassel, who pioneers the study of merger arbitrage in this heavily technical analysis. getAbstract suggests this advanced report on the nuances of M&A pricing and outcomes to trading specialists.

In this summary, you will learn

  • How a new model can predict the outcome of a mergers and acquisitions deal
  • How traders use merger arbitrage
  • Why options and stock prices together can better predict M&A outcomes than stock prices alone
 

Summary

Mergers and acquisitions of publicly traded companies have targeted implications for the firms involved, but more broadly, M&A transactions can affect the economy as a whole, functioning as a means of capital allocation and a driver of growth. Yet once announced, M&A deals are not a foregone...
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About the Author

Peter Van Tassel is a financial economist at the Federal Reserve Bank of New York.


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