An option-based approach to risk arbitrage in emerging markets: Evidence from Taiwan takeover attempts

Luke Lin, Li Huei Lan, Shuang Shii Chuang

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Predicting the accuracy rate of takeover completion is the major key to risk arbitrage returns. In emerging markets, data on takeover attempts are either unavailable or of poor quality. Therefore, this paper proposes an option-based approach to improve the accuracy of prediction. Empirical research on Taiwan takeovers shows that by this approach, the accuracy rate is 71.15%-considerably higher than the average of 54.81% using qualitative models. There exist, on average, three opportunities to close arbitrage positions, at a time before completion dates, when the target and acquiring stock prices converge. The annualized abnormal return is 42.19% greater than it would otherwise be.

Original languageEnglish
Pages (from-to)512-521
Number of pages10
JournalJournal of Forecasting
Volume32
Issue number6
DOIs
Publication statusPublished - 2013 Sep 1

All Science Journal Classification (ASJC) codes

  • Modelling and Simulation
  • Computer Science Applications
  • Strategy and Management
  • Statistics, Probability and Uncertainty
  • Management Science and Operations Research

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