Merger Arbitrage

Merger Arbitrage, sometimes called Risk Arbitrage, involves investment in event-driven situations such as leveraged buyouts, mergers and hostile takeovers. Normally, the stock of an acquisition target appreciates while the acquiring company's stock decreases in value. These strategies generate returns by purchasing the stock of the company being acquired, and in some instances, selling short the stock of the acquiring company. Managers may employ the use of equity options as a low-risk alternative to the outright purchase or sale of common stock. Most Merger Arbitrage funds hedge against market risk by purchasing S&P put options or put option spreads.

FREE Live Data on 6140 Hedge Funds & CTAs

 

Related Terms:

• Sector Technology definition
• Program Fund Category definition
• Merger Arbitrage definition
• Sector Healthcare Biotechnology definition
• Fixed Income Convertible Bonds definition

Back to definitions home page >>