Predicting Status of Pre and Post M&A Deals Using Machine Learning and
Deep Learning Techniques
- URL: http://arxiv.org/abs/2110.09315v1
- Date: Thu, 5 Aug 2021 21:26:45 GMT
- Title: Predicting Status of Pre and Post M&A Deals Using Machine Learning and
Deep Learning Techniques
- Authors: Tugce Karatas, Ali Hirsa
- Abstract summary: Risk arbitrage or merger arbitrage is an investment strategy that speculates on the success of M&A deals.
Prediction of the deal status in advance is of great importance for risk arbitrageurs.
We present an ML and DL based methodology for takeover success prediction problem.
- Score: 0.0
- License: http://creativecommons.org/licenses/by/4.0/
- Abstract: Risk arbitrage or merger arbitrage is a well-known investment strategy that
speculates on the success of M&A deals. Prediction of the deal status in
advance is of great importance for risk arbitrageurs. If a deal is mistakenly
classified as a completed deal, then enormous cost can be incurred as a result
of investing in target company shares. On the contrary, risk arbitrageurs may
lose the opportunity of making profit. In this paper, we present an ML and DL
based methodology for takeover success prediction problem. We initially apply
various ML techniques for data preprocessing such as kNN for data imputation,
PCA for lower dimensional representation of numerical variables, MCA for
categorical variables, and LSTM autoencoder for sentiment scores. We experiment
with different cost functions, different evaluation metrics, and oversampling
techniques to address class imbalance in our dataset. We then implement
feedforward neural networks to predict the success of the deal status. Our
preliminary results indicate that our methodology outperforms the benchmark
models such as logit and weighted logit models. We also integrate sentiment
scores into our methodology using different model architectures, but our
preliminary results show that the performance is not changing much compared to
the simple FFNN framework. We will explore different architectures and employ a
thorough hyperparameter tuning for sentiment scores as a future work.
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