CFA Level I · CFA Level I Exam · Hedge Funds
A hedge fund buys the shares of a company that has announced it will be acquired and takes a short position in the shares of the acquirer, aiming to earn the gap between the offer price and the target's market price. This strategy is best described as:
The strategy is merger arbitrage. The fund buys the target after a deal announcement and shorts the acquirer when the offer is paid in shares, seeking to capture the spread between the offer value and the target's lower market price as the deal closes.
- Amerger arbitrageCorrect
- Bdistressed securities investing
- Cglobal macro investing
Explanation
Merger arbitrage buys the target and often shorts the acquirer in a stock deal to capture the spread between the offer value and the target's price. Distressed investing targets firms near or in bankruptcy, and global macro trades economy-wide views.
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