Backtest: What happens to an acquired company?

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Backtest: What happens to an acquired company?

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Seeking Help Using Data

In my trading algorithm, I'm putting considerable effort into ensuring my cash level doesn't go negative. I want to set up a strictly long, unleveraged trading situation. So given this, I'm wondering how I should handle the acquisition of a company that I have bought in a backtest.

The specific question I have is about Sunoco (SUN), which according to this article was acquired in a cash+stock deal in 2012:

http://dealbook.nytimes.com/2012/04/30/energy-transfer-to-buy-sunoco-for-5-3-billion/

This was a cash+stock deal. So after the deal goes through, I would expect to:

Have no position in SUN
Have a new position in energy transfer partners (ETP)

But, I have the following position in my context. I can't figure out if a cash value equivalent to this now untradable position was added to my account.

Position({'amount': 85, 'last_sale_price': 46.8, 'cost_basis': 47.33311765969047, 'sid': Equity(7211, symbol=u'SUN', asset_name=u'SUNOCO INC', exchange=u'NEW YORK STOCK EXCHANGE', start_date=Timestamp('1993-01-04 00:00:00+0000', tz='UTC'), end_date=Timestamp('2012-10-04 00:00:00+0000', tz='UTC'), first_traded=None, auto_close_date=None)})

So far as I can tell, I didn't see a new position for ETP in my portfolio. Nor did I see a cash deposit corresponding to the SUN acquisition. Which means that my backtest showed performance worse than I would otherwise expect.

If anyone has further information to offer on this matter, I would really appreciate it.

Thanks,

Sunil

2 responses

Simon Thornington

I am not sure how well the backtester handles M&A. In the past, for stocks which are going to be delisted, the recommendation has been to check the end_date of the sid, and if it's coming up, pre-emptively sell it a few days prior. Clearly that won't be possible in live-trading, but hopefully if the algo can handle unexpected positions (by selling them, for instance), live trading won't be a disaster.

Far from ideal as it doesn't handle stock-for-stock deals, but at least I won't be stuck with a position that I can't do anything with... I'll take your suggestion in place of the much hackier code I now have in place.

Thanks,

Sunil

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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.