Risk arbitrage generates excess returns of four percent per year.
The study looked at almost 5,000 mergers from 1963 to 1998 to understand the risks and returns in risk arbitrage. They found that in bad markets, risk arbitrage returns go up with market returns, but in good markets, they don't. This means that risk arbitrage is like selling index put options. After considering market returns and transaction costs, they found that risk arbitrage can give you an extra four percent return each year.