Arbitrageurs often adopt which of the following strategies in a share for share exchange just before or just after a merger announcement?
A) Buy the target firm's stock
B) Buy the target firm's stock and sell the acquirer's stock short
C) Buy the acquirer's stock only
D) Sell the target's stock short and buy the acquirer's stock
E) Sell the target stock short

Question

Quizplus · Accepted Answer

Arbitrageurs often adopt the strategy of buying the target firm's stock and selling the acquirer's stock short in a share for share exchange just before or just after a merger announcement. This is because the arbitrageurs assume that the acquirer's stock will decrease in value as the market adjusts to the merger announcement, while the target firm's stock will increase in value. By buying the target firm's stock and selling the acquirer's stock short, the arbitrageurs can profit from the difference in these stock price movements.

Arbitrageurs Often Adopt Which of the Following Strategies in a Share