The Research On Merger Arbitrage Strategy Of Hedge Fund

With the increasing efficiency of pricing in financial markets and changes of investment environment,traditional financial instruments can not meet investors'demand for return.With the varieties of investment strategies,professional investment technologies and different financial investment instruments,hedge funds are particularly noted by people,wihch meet diversified demands of both the individual investors and institutional investors.Hedge funds have grown rapidly overseas,and research on this issue is relatively mature,while the domestic hedge fund has just started.As a typical strategy of event driven strategy,merger arbitragy is commonly used in the global financial market.With the lauching of securities margin trading and stock index futures business,the development of M&A market and the improvement of M&A information disclosure of listed company,applying merger arbitrage strategy in China has become possible.In this paper,hedge fund merger arbitrage strategy is the research object.I summarize the development status of global hedge fund's merger arbitrage strategy,and analyze the important element in the investment process of merger arbitrage of hedge fund,study two cases in which hedge fund used merger arbitrage to make profit,finally analyze limitations of it's applying in China,and put forward related suggestions.This essay conclude that active M&A deals play a promoting role in scale increase of merger arbitrage hedge funds and the leverage tatio of this strategy is low.In addition,merger arbitrage strategy has a charateristic of low risk and stable return.As concluded,the success of merger arbitrage needs some conditions.Firstly,it requires a good ability of grasping industry trend.Secondly,it needs correct judgement of arbitrage risk and target company's value.Thirdly,it requires technical arrangement in arbitrage.Last but not least,it needs the right choice of choosing arbitrage time.Except for all above,its success also needs some external conditions.At present,there are still some limitations for applying merger arbitrage strategy in China,including that agreement aquisiton is the main form of M&A,the ownership structure of listed companies needs to be optimized,and hedge tools are limited.In order to solve these problems,the government should encourage public offer to acquire listed companies,optimize the ownership structure of listed companies,develop derivative market,and strengthen the supervision and guidance of merger arbitrage hedge funds.