what is merger arbitrage 
merger arbitrage often considered a hedge fund strategy involves simultaneously purchasing and selling the respective stock of two merging companies to create riskless profits because there is the uncertainty of the deal being completed the stock price of the target company typically sells at a price below the acquisition price a merger arbitrageur will review the probability of a merger not closing on time or at all and will then purchase the stock before the acquisition expecting to make a profit when the merger or acquisition completes understanding merger arbitragemerger arbitrage also known as risk arbitrage is a subset of event driven investing or trading which involves exploiting market inefficiencies before or after a merger or acquisition a regular portfolio manager often focuses on the profitability of the merged entity by contrast merger arbitrageurs focus on the probability of the deal being approved and how long it will take to finalize the deal since there is a probability the deal may not be approved merger arbitrage carries some risk merger arbitrage is a strategy that focuses on the merger event rather than the overall performance of the stock market special considerations