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Equity arbitrage

Equity arbitrage Definition

A form of arbitrage which involves the simultaneous purchase of shares in one company and the short sale of assets in another. This strategy is typically used in expectation of a pending announcement of a take-over by a company. By purchasing shares in the company that is expected to be taken over (with the anticipation that market value will increase) and selling short shares in the acquiring company (with the anticipation that market value will decrease), an investor hopes to gain from both sides of the trade. This may also be used in situations involving tender offers or reorganizations. Also known as Risk arbitrage.

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Arbitrageur




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