What is event-driven investing?
It's a hedge fund investment strategy that aims to take advantage of corporate events such as earnings calls, mergers or acquisitions that can result in a company's stock being temporarily mispriced. In particular, this strategy exploits the tendency of shares to drop during times of change.
Where have you heard about event-driven investing?
You might have read about it in the business comment columns. For example, Stephen Foley of the Financial Times is writing on 'the so-called death of event-driven investing' in March 2016.
What you need to know about event-driven investing.
When a company is navigating a reorganisation, restructuring, merger or acquisition, its share price can stagnate until confidence returns. Event-driven strategists examine the company's underlying value and any potential regulatory hurdles ahead, and if they feel comfortable about the company's strength they may buy shares to sell later when the price readjusts.
Event-driven investing strategies tend to be used by sophisticated investors such as hedge funds and private equity firms, as traditional equity investors don't usually have the access to information necessary to properly weigh up the risks associated with many big corporate events.