Event Driven Strategy

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.

RELATED TERMS
  1. Hedge Fund Manager

    The individual who oversees and makes decisions about the investments ...
  2. Event Risk

    1. The risk due to unforeseen events partaken by or associated ...
  3. Restructuring

    A significant modification made to the debt, operations or structure ...
  4. Basis Trading

    An arbitrage trading strategy that aims to profit from perceived ...
  5. Debt Restructuring

    A method used by companies with outstanding debt obligations ...
  6. Selling Hedge

    A hedging strategy with which the sale of futures contracts are ...
Related Articles
  1. Mutual Funds & ETFs

    3 Large Cap Equity Mutual Funds That Rely on Strong M&A

    Read out about three mutual funds that rely on mergers and acquisition (M&A) transactions in the large-cap equity market, and learn about their characteristics.
  2. Mutual Funds & ETFs

    4 Reasons to Still Consider Traditional 2 & 20 Hedge Funds

    Find out why traditional 2 & 20 hedge funds are still worth considering as an investment, even though they have underperformed for the last several years.
  3. Mutual Funds & ETFs

    The Multiple Strategies Of Hedge Funds

    Hedge fund investors or potential investors need to understand how much risk hedge funds take in making money.
  4. Stock Analysis

    Hedge Funds: Idiosyncratic Challenges to Fade

    With shifting monetary policy, we see renewed potential across many hedge fund strategies.
  5. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  6. Options & Futures

    Mergers and Acquisitions: Definition

    The Main Idea One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and ...
  7. Mutual Funds & ETFs

    How To Invest Like A Hedge Fund

    Hedge funds earn big returns for investors. Find out how they do it and whether you can too.
  8. Mutual Funds & ETFs

    Are Hedged Mutual Funds For You?

    Long the purview of institutional investors and ultra-wealthy individuals, financial services firms are making alternative investment strategies available to a wider audience of investors. Understanding ...
  9. Economics

    The Merger: What To Do When Companies Converge

    Mergers occur when it’s beneficial for two companies to combine business operations. The question is; if you’re invested in a company that’s involved in a merger, will it benefit you?
  10. Investing Basics

    Investment Strategies For Volatile Markets

    Read on to learn some investment strategies when the volatility is high.
RELATED FAQS
  1. How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading ... Read Answer >>
  2. In M&A how does an all-stock or all-cash deal affect the equity of the buying company? ...

    Mergers and acquisitions (M&A) are forms of corporate restructuring that are becoming increasingly popular in the modern ... Read Answer >>
  3. What does a hedge fund do?

    Read how hedge funds differ from other investment vehicles and how their investment strategies make them unique and potentially ... Read Answer >>
  4. What is the difference between a merger and an acquisition?

    Read about the legal and practical differences between a corporate merger and corporate acquisition, two terms often used ... Read Answer >>
  5. How can I develop a profitable merger arbitrage strategy?

    Learn how to utilize a simple merger arbitrage trading strategy to profit from the typical temporary price discrepancies ... Read Answer >>
  6. What is the difference between a hedge fund and a private equity fund?

    Learn the primary differences between hedge funds and private equity funds, both of which are utilized by high net worth ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center