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Risk Arbitrage In U.S. Financial Markets

Author

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  • Supreena Narayanan

    (Stockholm School of Economics)

Abstract

This paper analyses risk arbitrage in U.S. financial markets. The first section deals with understanding the risk arbitrage mechanism. This is followed by the second section which deals with another genus of risk arbitrage i.e. risk arbitrage in takeovers. The third section analyses and provides a solution to a case study on risk arbitrage. The fourth section deals with understanding the effects of stock market returns and business conditions, merger and acquisition trend and the financial regulatory mechanism on risk arbitrage in U.S. financial markets. The fifth and final section summarises the analysis made in the earlier sections followed by a note on future trends in U.S. risk arbitrage activities. The paper returns associated with risk arbitrage are more pronouncedly decreased in down stock market and business conditions especially when there is possibility of deal failure. 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. There has also been a growing trend in US financial markets to curb illegal trading in risk arbitrage activities through limits on trading volume and control of regulatory arbitrage which should continue into the future.

Suggested Citation

  • Supreena Narayanan, 2004. "Risk Arbitrage In U.S. Financial Markets," Finance 0410017, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0410017
    Note: Type of Document - doc; pages: 47
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    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)

    More about this item

    Keywords

    Risk Arbitrage;

    JEL classification:

    • G - Financial Economics

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