Announcing: Mergers and Acquisitions available through Pipeline

Mergers and Acquisitions (M&As) are a hotbed of news in finance. One bad deal can send a company's stock price spiraling while another can take it to the moon. For this reason, M&As can often pose a significant risk to quantitative trading strategies. For those who aren't familiar with M&As, Investopedia provides a short summary,

Mergers

“A merger happens when two firms, often of about the same size, agree
to go forward as a single new company rather than remain separately
owned and operated."

Acquisitions

"When one company takes over another and clearly established itself as
the new owner, the purchase is called an acquisition. From a legal
point of view, the target company ceases to exist, the buyer

While there are ways to trade directly on M&As (merger arb), this post will focus on these corporate events from a risk management perspective.

Risk Management

Both the target and acquiring company are publicly announced in an acquisition deal. These strategies pose a large risk to quant strategies because quant strategies, by definition, use historical price data or otherwise to make predictions about the future. However, when a stock becomes the target of an acquisition, the security becomes a fundamentally different stock with no continuity to its past. That means quant strategies attempting to trade on acquisition targets are trying to make predictions based on historical data that is no longer relevant to the given security. To avoid this, targets of an M&A should be removed from a strategy's portfolio.

The algorithm below shows you how to use M&A from a risk management perspective by excluding all securities that are the target of a Cash Acquisition offer. The available options are cash, stock, mixed, all. For those who are interested in learning more in how these corporate actions can affect a quantitative trading strategy, view the research walkthrough.

FAQ

What am I getting from these factors?

These factors are created from EventVestor's Mergers and Acquisitions dataset (available for $85/mo) and allow you to identify which stocks are targets of acquisitions or proposed acquisitions. You can search them by the offer payment type (cash, stock, mixed) and the number of business days since the announcement. Do I know also know the acquiring security along with the target? For now, you're only able to identify targets of mergers and acquisitions. While we plan to allow support for identifying acquirers in the future, we haven't reached that point yet. This dataset missed a target, is the data broken? Not all data is perfect. Sometimes our partners provide us imperfect data. Sometimes Quantopian’s processing of the data introduces problems. Please submit a ticket to [email protected] 38 Loading notebook preview... Notebook previews are currently unavailable. Disclaimer The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. 7 responses Basic algorithm framework to use M&A Pipeline factors in an algo Please find the framework below and post if you have any questions on how to use it. 42 Loading... Backtest from to with initial capital Total Returns -- Alpha -- Beta -- Sharpe -- Sortino -- Max Drawdown -- Benchmark Returns -- Volatility --  Returns 1 Month 3 Month 6 Month 12 Month  Alpha 1 Month 3 Month 6 Month 12 Month  Beta 1 Month 3 Month 6 Month 12 Month  Sharpe 1 Month 3 Month 6 Month 12 Month  Sortino 1 Month 3 Month 6 Month 12 Month  Volatility 1 Month 3 Month 6 Month 12 Month  Max Drawdown 1 Month 3 Month 6 Month 12 Month # Backtest ID: 57d1a449574e0412e0e1f6d3 There was a runtime error. Very nice. I wonder how much of a risk this is (unless you are trading a small number of stocks). Interesting to investigate how much sharper benefits but much more interesting to use acquirer + target details to model arb strategies. Always something I have wanted to do. Of course Gordon Gekko had a rather different method of "arbing" M&A and the practice continues we understand! Great. This solves an issue I had, whereby an acquisition target's volatility becomes very low, and my position sizes became so massive, I had to introduce a cap. Another area which is nice to have is pending delisting. You can close out your positions in advance. It should be noted that the price for this data is$85 per month and that this data is not part of the Q pipeline data bundle.

@Seong Lee
Thanks for posting sample algo using this dataset. My question: does it mean that only these 5 data fields are available?
AnnouncedAcqTargetType,
ProposedAcqTargetType,