Risk Arbitrage

Topics:
Commercial Lending
Tags:
Arbitrage,
Arbitrage Fund,
Financial Services,
LJH Global Investments
Source:
LJH Global Investments

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Overview: Risk arbitrage is one of several styles of hedge fund investing that constitutes the event driven strategy. Event driven investing is a strategy that seeks to profit from special situations or opportunities to capitalize on price fluctuations or imbalances. It is generally equity-oriented investing designed to capture share price movement generated by an anticipated corporate event. Other types of event driven strategies in addition to risk arbitrage are special situations and distressed securities. In recent years, risk arbitrage funds have proven themselves consistently strong performers—even during periods of volatile market swings. However, returns for merger arbitrage funds were outpaced by the S&P 500 during the broad market’s recent unprecedented bull run, the following chart depicts the steady returns generated by merger arbitrageurs. Risk arbitrage strategy should be considered as part of an overall allocation to alternative investments by sophisticated investors. The benefits of risk arbitrage funds, such as low market correlation and a low standard deviation, for example, are crucial to constructing an efficient diversified portfolio. In addition, risk arbitrage funds have returned consistently strong profits to their investors for an extended period, independent of overall market conditions.

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Format: WORD | Size: 110KB | Date: Nov 2001 | Pages: 7

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