Risikoarbitrage i Europæiske Aktier

Abstract

The purpose of this thesis is to explore the potential abnormal returns generated by the merger arbitrage investment strategy. This is interesting because previous empirical literature has documented substantial positive abnormal returns from this investment strategy; however, these studies indicate potential for expanding on the established findings for three reasons: firstly, the studies predominantly focus on time periods within the 1980s-2000s; secondly, the majority of the previous literature focuses on the Anglosphere; and thirdly, several studies document declining merger arbitrage returns over time. Therefore, this thesis investigates whether these abnormal returns may also be earned within the European market and if the merger arbitrage returns have declined over time such that the foundation for the investment strategy may be eroding. For the analyses, data on all announced tender offers spanning 1999-2021 within European stock exchanges are collected and analysed with a combination of linear and non-linear analyses, and indicate that, overall, abnormal returns in the order of -1% to 6% annually are earned on the merger arbitrage investment strategy within Europe. These documented returns differ significantly across time and depending on the payment method of the underlying transactions. Moreover, the analyses indicate a non-linear relationship between market returns and the returns earned by merger arbitrage. This suggests that a contingent claims approach may be more appropriate to capture the risk-return characteristics of the merger arbitrage investment strategy. The abnormal returns indicated by the contingent claims approach are lower than the returns established by the linear analyses, thus supporting the inference that previous studies utilising linear analyses may have underestimated the risks involved in merger arbitrage and overstated the returns from the investment strategy. To the best of our knowledge, no studies of merger arbitrage returns have been conducted in the existing empirical literature that encompass the entire European region. Moreover, this study expands upon the empirical studies of merger arbitrage returns by investigating a range of previously undocumented influencing factors. In terms of the linear model’s included risk factors, MAIS returns are positively affected by deals involving: target firms that are value stocks (relative to growth stocks); targets with weak (relative to robust) profitability; and target firms pursuing aggressive (relative to conservative) investment strategies. The remaining risk factors yield inconclusive results. Moreover, this paper determines that domestic deals outperform cross-border deals; focused deals outperform diversifying deals; and that the documented abnormal merger arbitrage returns are heavily influenced by the sub-region in which the target company is located.