Analysis of U.S. Merger Arbitrage Spreads During the 2008 Financial Crisis and the COVID-19 Market Recovery
Open Access
Author:
Kotireddy, Abhiram
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
J. Randall Woolridge, Thesis Supervisor Brian Spangler Davis, Thesis Honors Advisor
Keywords:
Finance M&A Arbitrage Recession
Abstract:
Arbitrage trading strategies have been long prevalent as a risk-free trading strategies that traders can take advantage of in times of market uncertainty. M&A transactions, due to the nature of valuations, can present arbitrage opportunities between times of close and open. We completed a regression analysis of M&A gross spreads returns and various recessionary economic indicators to determine if times of market uncertainty present better M&A arbitrage opportunities. We analyzed this topic to determine if there are opportunities for large-scale structural equity returns during market downturns. We concluded that there may be slightly higher returns during times of economic recession due to liquidity constraints decreasing the ability of arbitrageurs to revert arbitrage means back to zero. Due to the lack of normalizing index returns during M&A transactions being announced and closed, further analysis by regressing index returns during the M&A transaction and gross spread returns may yield clearer results.
