• Please log in or register to access this feature.

Research Article

An Option-Based Approach to Risk Arbitrage in Emerging Markets: Evidence from Taiwan Takeover Attempts

  1. Luke Lin1,*,
  2. Li-Huei Lan2,
  3. Shuang-shii Chuang2

Article first published online: 22 NOV 2012

DOI: 10.1002/for.2250

Additional Information

How to Cite

Lin, L., Lan, L.-H. and Chuang, S.-s. (2012), An Option-Based Approach to Risk Arbitrage in Emerging Markets: Evidence from Taiwan Takeover Attempts. J. Forecast.. doi: 10.1002/for.2250

Author Information

  1. 1

    National Kaohsiung First University of Science and Technology, Taiwan

  2. 2

    National Cheng Kung University, Taiwan

*Luke Lin, National Kaohsiung First University of Science and Technology Kaohsiung, Taiwan. E-mail: d9043805@gmail.com

Publication History

  1. Article first published online: 22 NOV 2012
  2. Manuscript Accepted: 27 JUL 2012
  3. Manuscript Revised: 29 MAY 2012
  4. Manuscript Received: 15 SEP 2010

SEARCH

SEARCH BY CITATION

ARTICLE TOOLS

View Full Article (HTML) Get PDF (212K)

Keywords:

  • risk arbitrage;
  • exchange option model;
  • takeover attempts

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. Copyright © 2012 John Wiley & Sons, Ltd.

View Full Article (HTML) Get PDF (212K)