Macroeconomic Drivers Behind Risk Arbitrage Strategy

Abstract

This document is a quantitative analysis of risk arbitrage strategy across a sample of 1,911 M&A deals announced between January 1998 and September 2010 in the US and Canada. The study highlights the macroeconomic factors that might affect the risk/yield calculation for a risk arbitrage position. The main factors are: US unemployment, the investor confidence indicator, the investment grade credit spread, P/E and price on the S&P 500, short term interest rates and the yield curve. Ultimately, it is hoped that this document will provide managers with an interpretation of the mergers & acquisitions market as well as a decision-making tool to complement traditional qualitative analysis.