Faculty Scholarship 1994 - Present

Takeover Success Prediction and Performance of Risk Arbitrage

A takeover success prediction model should be of considerable interest to risk arbitrageurs. First, this paper shows that the target?s stock price run-up, resistance, arbitrage spread, and relative size, as well as bidding competition, play significant roles in predicting the deal?s outcome. Second, the paper illustrates how a takeover success prediction model using a logistic regression on a pair-matched sample results in biased parameter estimates and probability estimates that may mislead risk arbitrageurs. Third, the paper demonstrates how a computationally easy technique?weighted logistic regression?can remove the biases and improve the performance of risk arbitrage.