TY - JOUR T1 - Risk-Arbitrage Spreads and Performance of Risk Arbitrage JF - The Journal of Alternative Investments SP - 9 LP - 22 DO - 10.3905/jai.2008.708847 VL - 11 IS - 1 AU - Ben S Branch AU - Jia Wang Y1 - 2008/06/30 UR - https://pm-research.com/content/11/1/9.abstract N2 - This article explores the cross sectional variation in risk arbitrage spreads. Factors that are relevant to the probability of deal success (i.e., target termination fees, target resistance, target price run-up, relative size of the target, and arbitrageurs' activity), bid revision (i.e., target's growth opportunity), potential loss when a deal fails (i.e., bid premium and bidder's systematic risk) and transaction costs for risk arbitrageurs (i.e., bidder's return volatility and low priced shares) are found to be significant in developing a prediction model for risk arbitrage spreads. Risk arbitrage portfolios are created by comparing predicted arbitrage spreads with actual arbitrage spreads. The results show that deals whose actual spreads exceed the predicted spreads tend to be more attractive investments. The model may be used by risk arbitrageurs to identify attractive risk arbitrage opportunities.TOPICS: Real assets/alternative investments/private equity, security analysis and valuation, risk management, performance measurement ER -