Event-driven Trading Strategies

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 Event-driven trading strategies take advantage of temporary mispricing in securities on account of, or in anticipation of a corporate or market event including Fed action, debt / corporate restructuring, merger and acquisitions, FDA approvals / new product announcements, law suits including anti-trust proceedings, change in government regulations and tariffs.

Potentially, there could be huge returns resulting from the temporary dislocation in event-driven security prices. However a successful execution of this strategy requires thorough due-diligence, expertise in the corporation’s primary industry, knowledge of the market and geographic region of operation, and considerable legal expertise.

The risks associated with this strategy include:

  • Returns are dependent on successful prediction of catalyst events to occur as forecasted, and in timely fashion. 
  • Changes in the event status or delays could adversely affect the security prices, and  consequently the expected returns. 
  • The strategy could experience higher volatility as one navigates through the duration of the investment, and as new information transpires resulting in changing circumstances reflected in the price swings of the underlying securities
Included below is a short but informative synopsis of different event-driven strategies.


Source: Russell Investments

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