Research On Exclusive Earnings Of Stock Market M & A Based On ARIMA Model

This study estimates the abnormal return of merger arbitrage for examining theprofitability of merger arbitrage strategy in the Chinese stock market. Using a sampleof59target firms in merger and acquisition transactions from January2004toDecember2013, the risk-adjusted abnormal return based on the ARIMA model andcumulative abnormal return derived from the event study method are adopted toevaluate the performance of merger arbitrage strategy.First of all, on the basis of stock price predicted by the ARIMA model, the resultshows that an average risk-adjusted return of43.15%is produced by implementingmerger arbitrage strategy. Meanwhile, the result from cumulative abnormal returnindicates that approximately24.70%average cumulative return is achieved by mergerarbitrage. In addition, the statistical analysis reveals that stock merger, on average,generates a higher abnormal return than cash merger in merger arbitrage transactions.Besides, the finding implies that the abnormal return captured after completing themerger and acquisition transaction is superior to the one in withdrawn transactions.Furthermore, depending on analyzing the regression of the cumulative abnormalreturn against the Market Model in the event study method, the finding reveals thatcumulative abnormal return is not significantly sensitive to market volatility. In otherwords, market movement cannot impact on the abnormal return of merger arbitragestrategy.