Improved Merger Arbitrage
Log in to collectAcademic paper
No News is News: Do Markets Underreact to Nothing?
Stefano Giglio; Kelly Shue
- National Bureau of Economic Research
- Yale University
- Centre for Economic Policy Research
- ?Centre for Economic Policy Research (CEPR)
- ?National Bureau of Economic Research (NBER)
- ?Yale School of Management
Strategy in a nutshell
The strategy invests in NYSE, Amex, and Nasdaq stocks engaged in announced mergers. It takes long positions in targets and short positions in acquirers for deals active during event weeks 16–39, rebalancing monthly. If no qualifying deals exist, the portfolio shifts into the risk-free rate. Equal weighting ensures balanced exposure, while monthly adjustments capture new opportunities and reduce risk during inactive periods.
Economic rationale
The period between a merger announcement and its completion reveals valuable information about deal success. Investor underreaction and limited attention to sparse updates create persistent mispricing, which this strategy exploits by systematically trading merger-related anomalies.