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A study on pairing arbitrage strategy of stock passive structured fund in China under extreme market conditions

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  • Wang, Liang
  • Xiong, Xianyan
  • Xu, Tingjia

Abstract

Considering the factors such as arbitrage lag, transaction cost and overall discount or premium, this paper constructs the split and merger arbitrage models to investigate the pairing arbitrage strategy of stock passive structured fund in China under extreme market conditions. The empirical results mainly show that: (i) the actual success times of merger arbitrage is significantly higher than that of split arbitrage, indicating that the former is more likely to succeed than the latter. (ii) the actual yield of split arbitrage is higher than that of merger arbitrage, and the former is far more at risk than the latter.

Suggested Citation

  • Wang, Liang & Xiong, Xianyan & Xu, Tingjia, 2021. "A study on pairing arbitrage strategy of stock passive structured fund in China under extreme market conditions," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320301720
    DOI: 10.1016/j.frl.2020.101721
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    References listed on IDEAS

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    1. Kunz, Alexis H. & Messner, Claude & Wallmeier, Martin, 2017. "Investors’ risk perceptions of structured financial products with worst-of payout characteristics," Journal of Behavioral and Experimental Finance, Elsevier, vol. 15(C), pages 66-73.
    2. Zhang, Huiming & Watada, Junzo, 2019. "An analysis of the arbitrage efficiency of the Chinese SSE 50ETF options market," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 474-489.
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