The effects of the risk arbitrage process on the trading in securities involved in takeovers.

摘要

This dissertation consists of an in-depth study of the risk arbitrage process and its effects on the trading of the securities involved in takeover attempts. The first chapter entitled, "Examination of the Effects of Arbitrage Activity on Terminated Takeover Transactions" is a detailed analysis of the performance of target companies' security prices after a merger, tender offer or bear hug transaction is cancelled. In this chapter we examine whether investors can obtain abnormal returns from investing in situations where the arbitrage community unwinds their positions after an acquisition announcement is terminated.; In the second chapter, "Return Distribution Changes in Securities Involved with Mergers and Takeovers", we examine the changes that occur in the distribution of security returns and betas when risk arbitrage transactions are announced. Secondly, we show that the distributions of returns from arbitrage opportunities are not normally distributed. We also examine arbitrage returns and the possible determinants of the returns. Finally, we use Monte Carlo simulation techniques to create risk arbitrage portfolios under various portfolio formation rules. We use these simulated portfolios to test the three different portfolio formation rules.; The third and final chapter, "A Microstructure Examination of Risk Arbitrage Behavior", is a study involving the use of trade-by-trade data to analyze the changes that occur in the trading of stocks of target companies after a merger or tender offer is publicly announced and arbitrageurs begin to trade in the target company's stock. We look at the changes that occur in the target company's stock initially after the takeover announcement, during the trading life of the transaction, just prior to the closing of the transaction, and in the case of cancelled transactions we look at the changes just before and after the transaction are cancelled. In all these cases we compare the changes to a base period prior to the announcement that is free from the biases of insider trading, rumors and leakage.