Merger Arbitrage Trading Strategy (Performance, Backtest, Results)

Merger arbitrage is a specialized trading strategy that seeks to capitalize on price differentials between a target company’s stock price and the offer price during a merger or acquisition. This strategy involves taking advantage of market inefficiencies created by the uncertainty surrounding such corporate events. But is it an effective strategy for trading? Does the reward outweigh the risks? Let’s look at a merger arbitrage trading strategy.

To test the profitability of merger arbitrage strategies, we decided to examine some of the ETFs and Mutual Funds available to investors. The first one is the IQ Merger Arbitrage ETF.

Below is shown its performance since its inception in 2010.

As you can see, the difference is huge. The CAGR of the IQ Merger Arbitrage ETF is 2.73%, while the S&P 500 is 18.52%. However, the volatility is less than half: 7.83 vs. 17.27 for SPY.

You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/merger-arbitrage-trading-strategy/