Merger Arbitrage Return Calculation
WSO-ers,
I'm trying to calculate the returns on an artificial merger arbitrage portfolio in order to compare them with returns from the S&P 500. However, I'm having an issue with annualizing the returns, as most academic papers do, because the annual returns generated are in excess of 100% and make no sense.
One paper utilizes a Fama-French three factor model, but I was curious to see how arbitrageurs actually calculate the returns. Could someone please point me in the right direction? Obviously, if it's an all-cash transaction, it's straightforward, but an all-stock transaction is a bit trickier to me.
Thank you,
klausdaimler