Merger Arbitrage funds (which may also be referred as to Risk Arbitrage or Deal Arbitrage funds) invest in companies involved in a Merger or Acquisition process. They typically go long the targeted company and sell short the stock of the acquiring company.

This strategy aims to capture the price spread (i.e. Merger Spread) between the current market price of the targeted company and the price offered by the acquiring firm.

The performances of Merger Arbitrage funds greatly depend on their ability to assess the probability of success / failure of the corporate transactions. The exposure of Merger Arbitrage funds to market risk greatly depends on the transactions arrangement.

Merger Arbitrage strategies are generally characterized by a relatively high return and a significant correlation with major stock indexes. Consequently, Merger Arbitrage strategies may be used as “Return Enhancers” in portfolios.

Monthly returns201620172018
January0.29%-0.20%0.77%
February0.40%0.79%-0.46%
March0.58%0.22%-0.56%
April-0.55%1.10%-0.28%
May0.72%0.67%1.11%
June-0.18%0.69%1.12%
July0.70%0.59%-0.21%
August0.82%-0.04%0.50%
September0.41%0.39%0.28%
October-0.62%0.23%-0.80%
November0.97%-0.77%n.a.
December0.88%0.78%n.a.
Annual4.50%4.52%1.47%
S&P 50011.96%21.83%3.01%
Lehman Treasury1.04%2.31%-2.14%
Quarterly returns201620172018
1st Quarter1.27%0.81%-0.26%
2nd Quarter-0.01%2.49%1.97%
3rd Quarter1.94%0.94%0.57%
4th Quarter1.22%0.23%-0.80%
Annual4.50%4.52%1.47%
S&P 50011.96%21.83%3.01%
Lehman Treasury1.04%2.31%-2.14%
Risk ProfileEdhec Merger Arbitrage IndexS&P 500Lehman Treasury
Monthly Std Dev Ann'd2.90%14.28%4.43%
Sharpe Ratio0.250.230.00
Information ratio-0.20n.a.n.a.
Min. Monthly Return-2.76%-16.80%-4.39%
Max. Monthly Return2.72%10.93%5.31%
Mean Monthly Return0.38%0.59%0.33%
Median Monthly Return0.51%1.07%0.36%
Exc. Kurtosis1.661.381.53
Skewness-0.80-0.670.04
% of winning Months74.77%65.89%58.41%
Average Winning Return0.76%2.86%1.13%
% of losing Months25.23%34.11%41.59%
Average Losing Return-0.72%-3.80%-0.80%
Correlation AnalysisEdhec Merger Arbitrage IndexS&P 500Lehman Treasury
S&P 5000.611.00-0.34
S&P 500 Value0.590.97-0.34
S&P 500 Growth0.590.97-0.32
S&P Mid Cap0.670.92-0.33
S&P Small Cap0.600.87-0.34
Lehman Treasury-0.15-0.341.00
Baa-Aaa0.04-0.070.06
Chg in Baa - Aaa-0.17-0.120.17
10 years - 3 Months-0.16-0.050.12
Chg in 10 years - 3 Months-0.03-0.03-0.05
VIX-0.31-0.440.27
Chg in VIX-0.49-0.670.19
in %CSFBHennesseeHFRHF NetBarclayCISDMAltvest
2006 Q213.3%14.2%14.6%14.7%14.7%14.3%14.3%
2006 Q313.5%13.8%14.5%14.9%14.6%14.5%14.2%
2006 Q413.6%14.0%14.4%14.9%14.6%14.4%14.1%
2007 Q112.0%14.2%14.6%15.2%14.9%14.6%14.4%
2007 Q212.8%15.1%15.7%16.2%10.5%14.2%15.5%
2007 Q312.1%15.2%15.7%16.3%10.3%14.6%15.8%
2007 Q410.5%15.4%16.2%16.8%9.9%14.9%16.4%
2008 Q110.7%15.2%15.8%16.1%11.0%15.4%15.7%
2008 Q29.6%15.1%16.0%16.2%11.5%15.7%15.9%
2008 Q39.0%15.3%16.1%16.3%11.5%15.8%16.0%
2008 Q410.6%15.0%16.0%16.0%12.3%15.5%14.6%
2009 Q111.5%14.0%15.7%15.7%12.5%15.2%15.4%
2009 Q211.4%13.9%15.8%15.8%12.4%15.2%15.5%
2009 Q311.6%13.7%15.7%15.7%12.5%15.2%15.5%
2009 Q411.7%13.6%15.8%15.7%12.5%15.2%15.5%
2010 Q112.1%13.5%15.8%15.6%12.4%15.1%15.4%
2010 Q212.1%12.9%15.3%15.2%14.7%14.7%14.9%
2010 Q312.6%12.7%15.3%15.2%14.8%14.6%14.8%
2010 Q412.9%12.5%15.2%15.1%15.0%14.7%14.7%
2011 Q112.7%11.8%15.4%15.2%15.1%14.9%14.9%
2011 Q213.6%11.8%15.3%15.1%15.0%14.6%14.6%
2011 Q314.1%11.2%15.3%15.1%15.0%14.6%14.7%
2011 Q414.4%11.2%15.3%15.1%14.8%14.6%14.5%
2012 Q114.1%13.0%15.4%13.0%14.9%14.8%14.8%
2012 Q216.6%15.2%18.0%15.2%17.5%17.5%n.a.
2012 Q316.4%15.5%17.9%15.2%17.4%17.6%n.a.
2012 Q416.2%15.6%18.0%15.0%17.5%17.7%n.a.
2013 Q116.3%15.6%17.9%15.4%17.0%17.8%n.a.
2013 Q216.3%15.5%17.9%15.5%16.9%17.9%n.a.
2013 Q316.1%15.3%18.1%15.5%17.0%18.0%n.a.
2013 Q416.0%16.0%18.1%15.2%16.8%17.9%n.a.
2014 Q116.2%16.3%18.0%15.1%16.6%17.9%n.a.
2014 Q216.2%16.3%17.9%15.0%16.6%17.9%n.a.
2014 Q316.5%16.3%17.9%15.0%16.5%17.8%n.a.
2014 Q419.4%n.a.20.8%18.3%20.5%20.9%n.a.
2015 Q119.4%n.a.20.3%20.5%19.9%19.9%n.a.
2015 Q219.3%n.a.20.4%20.6%19.6%20.1%n.a.
2015 Q319.2%n.a.20.5%20.5%19.7%20.0%n.a.
2015 Q419.7%n.a.20.8%19.9%19.6%20.0%n.a.
2016 Q119.7%n.a.21.2%19.6%19.6%19.9%n.a.
2016 Q219.9%n.a.21.4%18.5%20.0%20.2%n.a.
2016 Q319.7%n.a.21.2%18.6%20.1%20.3%n.a.
2016 Q419.8%n.a.21.3%18.5%19.9%20.4%n.a.
2017 Q119.6%n.a.21.1%18.6%20.2%20.5%n.a.
2017 Q219.5%n.a.21.3%18.6%20.2%20.4%n.a.
2017 Q319.6%n.a.21.0%18.7%20.4%20.4%n.a.
2017 Q418.9%n.a.21.3%18.9%20.5%20.4%n.a.
2018 Q118.4%n.a.21.5%19.2%20.5%20.5%n.a.
2018 Q218.8%n.a.21.4%19.4%20.7%19.7%n.a.
2018 Q318.5%n.a.21.6%19.5%20.5%20.0%n.a.
2018 Q418.1%n.a.21.6%19.4%20.8%20.1%n.a.
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