Quantitative Investment In Tender Offers

Tender offer is a common form of merger in mature security markets. The activitiesand revenues of merger arbitrageurs have been extensively studied, but there are very fewliteratures analyzing the investment opportunities in the short term after the announcementof tender offer. In this paper, with the theoretical analysis of high-frequency trading, eventarbitrage and margin trading, the opportunity of event arbitrage after the announcement oftender offer in Chinese stock market are explored. On the basis of the opportunity, anhigh-frequency investment strategy with margin trading is established.In this paper the theoretical backgrounds of tender offer, merger arbitrage, eventstudy analysis, high-frequency trading, event arbitrage and margin trading are introduced.These theories act as tools to analyze the abnormal returns in the term of tender offer andthe opportunity of event arbitrage after the announcement of tender offer, the resultsindicate that in the term of tender offer investors cannot get abnormal return, while thereare investment opportunities in the first30minutes of security trading after theannouncement. On this basis, the paper constructs a high-frequency trading strategy withmargin trading to explore the investment opportunity. The results show some appropriatearbitrage strategies lead to fair gains.The thesis uses the high-frequency trading method to construct a merger arbitragestrategy after the announcement of the tender offer for the first time in China’s securitymarket. This is the main innovative contribution of the research. One the other hand,because of the T+1trading pattern limitations in the current security market, the methodincorporates margin trading strategy.