Library:
Paris Champerret
Madrid
London
Paris Montparnasse
Turin
Berlin
Merger arbitrage is an event-driven investment strategy that capitalizes on the mispricing following the announcement of a merger. This study examines the uncertainty surrounding antitrust approval by utilizing market competition proxies such as the Herfindahl-Hirschman Index (HHI). The aim is to assess whether these tools can more effectively exploit publicly available mispricing opportunities. The analysis of US public equities from 2003 to 2023 shows an average return of 5.2%, with a statistically insignificant positive alpha of 6.7%, marking a 20% increase compared to a strategy not incorporating the HHI. The observed returns
are largely attributed to risk, with only a small portion (1.13 percentage points) capturing actual mispricing. Due to the statistical insignificance, the results do not conclusively demonstrate the profitability of a systematic approach to merger arbitrage. Further research is required to fully understand the impact of regulatory risk on mispricings.
