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Takeover Probabilities and the Opportunities for Hedge Funds and Hedge Fund Replication to Produce Abnormal Gains

In: Hedge Fund Replication

Author

Listed:
  • Anthony Ravi
  • Peter Mayall
  • John Simpson

Abstract

It is important for hedge fund managers and those investors involved in hedge fund replication to recognize that, following the announcement of a takeover offer, empirical marketplace evidence shows that the target’s share price does not always trade at the offered price. If investors are to replicate hedge fund strategies in relation to the pricing of a target in a takeover offer where the target is part of the hedge fund portfolio, it follows that the hedge fund managers must be seen to get the pricing strategy right. This chapter confirms a methodology that has been available to hedge fund managers to fine tune strategy in relation to takeover targets in a hedge fund portfolio, using evidence from Australia.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:palchp:978-0-230-35831-7_4
    DOI: 10.1057/9780230358317_4
    as

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    References listed on IDEAS

    as
    1. Mark Mitchell & Todd Pulvino, 2001. "Characteristics of Risk and Return in Risk Arbitrage," Journal of Finance, American Finance Association, vol. 56(6), pages 2135-2175, December.
    2. Elaine Hutson & Graham Partington, 1994. "Takeover Bids, Share Prices, and the Expected Value Hypothesis," Working Paper Series 36, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Hutson, Elaine, 2000. "Takeover targets and the probability of bid success: Evidence from the Australian market," International Review of Financial Analysis, Elsevier, vol. 9(1), pages 45-65, February.
    4. Samuelson, William & Rosenthal, Leonard, 1986. "Price Movements as Indicators of Tender Offer Success," Journal of Finance, American Finance Association, vol. 41(2), pages 481-499, June.
    5. Bradley, Michael & Desai, Anand & Kim, E. Han, 1983. "The rationale behind interfirm tender offers : Information or synergy?," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 183-206, April.
    6. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    7. 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.
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