Risk arbitrage in emerging markets
Name
387987902-MIT.pdf
Description
Full printable version
Size
3.42 MB
Format
Adobe PDF
Checksum (MD5)
2c6f332d8ba91698a0beb20fd763828f
Author(s)
Goh, Mengkiat
Advisor(s)
Roy E. Welsch.
Date Issued
2008
Publisher
Massachusetts Institute of Technology
Abstract
Risk arbitrage is one of the investment strategies commonly employed by hedge funds and financial investment firms. In essence, it constitutes a bet on whether a merger deal is consummated. Several academic studies have found that risk arbitrage trading strategies are able to generate sustainable positive returns. However, these studies have been largely confined to risk arbitrage investments in developed markets. In this thesis, we quantify the risk arbitrage investment process and create trading strategies that generate positive risk-adjusted returns in emerging markets. We use a sample of 810 stock and cash mergers and acquisitions in emerging markets from 2001 to 2007. We find that returns in excess of 7.9% can be obtained using the prediction model formulated in this thesis. Our analysis suggests that the probability of success of a merger depends on a deal's characteristics. Further, it implies that one can improve on the market-implied estimates thereby creating trading opportunities. The analytical results achieved in this thesis can be used as the foundation for building an effective risk arbitrage trading platform in emerging markets.
Description
Thesis (M. Eng.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, 2008.
Includes bibliographical references (p. 63-64).
Subjects
Electrical Engineering and Computer Science.
MIT Department
Massachusetts Institute of Technology. Department of Electrical Engineering and Computer Science
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