Define: Risk Arbitrage

UK Accounting Glossary

Definition: Risk Arbitrage



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Full Definition of Risk Arbitrage


Risk arbitrage, or “risk arb” is usually taken to mean trading in stocks possibly involved in a merger or acquisition. More clearly, this risk arbitrage strategy is sometimes called merger arbitrage. The premise of this type of risk arbitrage is that an acquiring company will usually make a tender offer for all outstanding shares at a premium above the current market price. Buying shares speculatively on the basis of a rumour of a tender offer and after the offer has been announced are each considered risk arbitrage. Since shares of the acquiring company tend to fall, selling its shares short is often part of the risk arbitrage strategy, too. Entire books have been written about risk arbitrage situations including the merger event and other special situations. While originally mostly the domain of the hedge fund, today risk arbitrage trading approaches are available to the individual investor. Risk arbitrage is a slight misnomer since in theory arbitrage is risk-free, but in practice, there is some risk to any risk arbitrage trading strategy.


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Definition Sources


Definitions for Risk Arbitrage are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 6th February 2020.