Charles M. Lahr
These attributes can be misleading when taken in the context of a longer term horizon. Take a look at the same return series, but note the compound annual return (CAGR) over the entire five year period (bolded at the bottom of Figure 5).
These data suggest that investing in merger arbitrage for these five years would have provided almost double the return of the MSCI World index, despite the unlevered HFRI Merger Arbitrage Index providing far lower returns in four of the five years. The reason for this is that the unlevered HFRI Merger Arbitrage Index did not experience the substantial losses incurred by the MSCI World Index in 2008. According to Figure 5, a broad merger arbitrage strategy still lost money in 2008, but it lost far less than the index chosen to represent the overall equity market. While some investors might be regretting their exposure to merger arbitrage in certain years, a longer term view can help put the strategy into perspective.
Pre Announcement (12/16/10): B1: $5.79 B2: $61.66
Post Announcement (12/17/10): B1: $6.85 B2: $57.26
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