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Event-Driven Trading Strategies

Several investment management companies have specialized in exploiting news driven trading strategies. Event driven strategies are defined as “special situations” investing. The strategy is designed to extract profits by significant pending corporate or market news events. Such corporate news events are for example mergers, restructuring, litigation or bankruptcy, examples for market news are announcements of economic indicators (unemployment rate, PMIs, etc.) or interest rate changes.

Event driven funds invest in almost all liquid asset classes, i.e. equities, fixed income instruments and derivatives. The strategies can be differentiated in terms of their investment horizon. High-Frequency investors have typically an investment horizon of less than five minutes and aim to profit from fast information processing. Merger-arbitrage funds in contrast invest often over time periods spanning a horizon of several weeks up to several month, seeking to capture the spreads in the transaction bid and the trading price after a merger or acquisition announcement.