Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130643
Authors: 
Van Tassel, Peter
Year of Publication: 
2016
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 761
Abstract: 
Option prices embed predictive content for the outcomes of pending mergers and acquisitions. This is particularly important in merger arbitrage, where deal failure is a key risk. In this paper, I propose a dynamic asset pricing model that exploits the joint information in target stock and option prices to forecast deal outcomes. By analyzing how deal announcements affect the level and higher moments of target stock prices, the model yields better forecasts than existing methods. In addition, the model accurately predicts that merger arbitrage exhibits low volatility and a large Sharpe ratio when deals are likely to succeed.
Subjects: 
financial economics
option pricing
mergers and acquisitions
JEL: 
G00
G12
G34
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.