| In trying to capitalize on the news of mergers and acquisitions, hedge funds are being outdone by an exchange-traded fund clone. Thanks to stockpiles of cash and low borrowing costs, the dollar volume of global M&A deals rose 45%, to $3.3 trillion, in 2014. That's the highest level since 2007, according to Bloomberg Intelligence.
It's an ideal environment for the hedge fund strategy known as merger arbitrage, which involves buying the stock of a company being acquired while selling short the stock of the acquirer at the same time. Because deals can fall through, the stock of the target will initially trade for slightly less than the deal's closing price. Arbitrageurs hope to capitalize on a valuation gap when the target's price rises as the deal moves closer to being done...............................................Full Article: Source
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