Risk Arbitrage in Takeovers

Francesca Cornelli*, David D. Li

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

42 Scopus citations


This article studies the role of risk arbitrageurs in takeovers and the source of their advantage. We show how the presence of arbitrageurs affects the value of the target shares, since arbitrageurs are more likely to tender. Therefore an arbitrageur has the informational advantage of knowing he bought shares. In equilibrium, the number of arbitrageurs buying shares and the price they pay are determined endogenously. We also present several empirical implications, including the relationship among trading volume, takeover premium, liquidity of the shares, and the number of risk arbitrageurs investing in one particular deal.

Original languageEnglish (US)
Pages (from-to)837-868
Number of pages32
JournalReview of Financial Studies
Issue number3
StatePublished - 2002

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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