Event Driven Hedge Funds

Event Driven

Event driven hedge funds anticipate price changes in securities based on events in the corporate cycle of a company or perhaps news events that would affect the future stock price. Event driven hedge funds need to be on constant alert on news and company press releases as any potential profits could be “arbitraged” away after a short period after the event has taken place.

Merger arbitrage to a certain extent falls into the category of event driven as the announcement of a merger is an event. The trader that reacts to the news the quickest is able to profit the most from the spread converging. Other event driven strategies include corporate action announcements like buyback, splits, dividend announcements and new stock as well as bond issues. There are also some more macro driven events like equity index additions/deletions and rebalancing. Trading equities based on macro variables would also constitute as event driven. For example a trader can have a model which predicts the amount and direction of a stock move relative to a surprise by the Fed in rate changes.