RT Journal Article SR Electronic T1 Risk-Arbitrage Spreads and Performance of Risk Arbitrage JF The Journal of Alternative Investments FD Institutional Investor Journals SP 9 OP 22 DO 10.3905/jai.2008.708847 VO 11 IS 1 A1 Ben S Branch A1 Jia Wang YR 2008 UL https://pm-research.com/content/11/1/9.abstract AB 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