What is an 'Event Driven Strategy'

An event driven strategy is a strategy, adopted by hedge fund managers, that attempts to take advantage of events such as mergers and restructurings that can result in the short-term mispricing of a company's stock. An event-driven strategy focuses on exploiting the tendency of the equities of companies in a time of change to drop in price.

BREAKING DOWN 'Event Driven Strategy'

Investors often become concerned when a company is going through a corporate reorganization, restructuring, merger, acquisition or other major event. This can lead the stock price to stagnate until investors feel comfortable with its stability again. When a hedge fund manager or other event-driven strategist finds a potential investment, he or she will examine the underlying value of the company and the situation surrounding the event, including potential regulatory pitfalls. If he or she feels positive about the event and the strength of the company, he or she may buy shares to sell later when the price adjusts.

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