Is Merger Arbitrage Profitable in Sweden?

Abstract: Merger arbitrage has been the focus of extensive research in recent years. It is an investment strategy that is used to exploit the price discrepancies between the stocks of the merging companies at the an-nouncement of a merger or acquisition. Much of the empirical research performed within the U.S. found evidence that it generates abnormal profits. We investigate whether these results are applicable for Sweden, a country with a different institutional setting than U.S. We find that it is possible to make abnormal profits with this strategy however this profitability depends on specific conditions such as the method of payment and the ownership structure of the merging companies. The profits are maximized by investing in deals in which the method of payment is cash and both of the companies are character-ized by family ownership.