Comprehensive Study of Special-Purpose Acquisition Company (SPAC): An Investment Perspective

Special-Purpose Acquisition Company (SPAC) has been a widely discussed topic since 2020 and the trend continues in 2021. The paper provides a comprehensive overview of SPACs, including their capital structure, market participants, characteristics of their management teams, and factors contributing to its uprise. Abnormal returns analysis were performed on SPACs with both the CAPM and the Fama-French 3-Factor models. Results show that SPACs generally have negative alpha in different periods and their Sharpe ratios are lower than that of the S&P 500 index. However, most SPAC sectors that have completed their merger-and-acquisition illustrate positive excess returns. Then a SPAC investment strategy was designed using trading volume as a major sentiment indicator. The strategy outperforms the S&P 500 index with a Sharpe ratio of 2.59 in the back-test, suggesting its potential to yield considerable profit in SPACs investment.

Keywords: SPAC, Alpha, Investment, Strategy

Suggested Citation: Suggested Citation

Chong, Eason and Zhong, Emily and Li, Fannie and Li, Qianyi and Agrawal, Saharsh and Zhang, Qingquan, Comprehensive Study of Special-Purpose Acquisition Company (SPAC): An Investment Perspective (June 8, 2021). Available at SSRN: https://ssrn.com/abstract=3862186 or http://dx.doi.org/10.2139/ssrn.3862186