Machines say: ‘Ignore the spread in merger arb’

Closely watched arbitrage spread poor predictor of a merger deal’s success, quant firm finds


For merger arbitrageurs, the so-called arbitrage spread is a key indicator of risk. But one investment firm has discovered, using machine learning, that the spread carries zero information most of the time.  

Merger arbitrage is a strategy of investing – long and short – in the stock of companies involved in a merger or takeover, with the aim of profiting from the successful completion of the deal.

The bidder usually has to pay a premium for the target company’s shares, leading to a spread

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