An Empirical Study On The Effectiveness Of China 's A - Share Listed Companies' Offer To Offer Arbitrage Strategy

With the completion of the China’s share reform, the listed corporation mergers are emerging, and tender offers bring new opportunities for the arbitrage in Chinese market. This paper aims to explore the particularity of tender offer arbitrage in Chinese market and analyze the expressions of different arbitrage strategy’s effectiveness, classifying the target companies by listed location (Shanghai Stock Exchange or Shenzhen Stock Exchange) and the nature of companies (state-owned or non-state-owned). Based on the research achievements of foreign scholars, this paper uses event study method to review the profitability of merger arbitrage strategies in secondary market, and analyzes the31tender offers (2005.06-2012.12) in arbitrage’s effectiveness and profitability completely.The empirical result shows that, arbitrage can get a positive return with tender offer form in all the samples on the event windows of (-30,30), as well as the cumulative abnormal return (CAR) is significant. At the same time, for events which happened in Shanghai Stock Exchange, holding for the longer period was a better choice, and short-term arbitrage couldn’t obtain abnormal return. However, for events which happened in Shenzhen Stock Exchange, the arbitrage strategies were more flexible. Insider trading existed more possibly in events which happened in state-owned target corporations, and the duration for arbitrage of these events were shorter. For non-state-owned target corporations, we could arbitrage with the better flexibility. Moreover, AAR dramatically increased at (-30,0), but it sharply decreased after the tender offer announcement. It is concluded that there is the existence of insider trading prior to tender offer announcement, and the insider trading is more likely exist in Shenzhen Stock Exchange.