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You are a hedge fund trader specializing in the pharmaceutical industry. Your models indicate that the stock of Merck ( NYSE: MRK ) is currently
You are a hedge fund trader specializing in the pharmaceutical industry. Your models indicate that the stock of Merck NYSE: MRK is currently undervalued. You implement a longshort arbitrage strategy to profit from this mispricing. You go long MRK and as a hedge, you go short their closest competitor, Pfizer Inc. NYSE: PFE Which of the following scenarios represents a source of fundamental risk to this arbitrage strategy?
the US Supreme Court approves shareholder lawsuits against MRK related to its Vioxx drug
traders who think MRK is overvalued continue to sell it driving down its price
you are unable to find any shares of PFE to short
the pharmaceutical industry as a whole suffers massive losses due to changes in health care law
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