Event-Driven Investing: Making the most of corporate actions and news events
corporate actions, news events, regulatory changes, and economic factors.
Often, investors react excessively or insufficiently to specific news events, creating opportunities for those who closely monitor the markets.
The persistence of mispricing opportunities in the stock markets challenges the notion that they are entirely rational and efficiently priced in all material information.
Let's explore strategies for identifying profitable opportunities while managing risks in event-driven investing.
What are Event-Driven Strategies?
Event-driven strategies aim to profit from temporary stock mispricing before or after corporate actions, like mergers, share buybacks, or dividend announcements. These actions can cause rapid price changes in seconds.
Additionally, these strategies may capitalise on sectors benefiting from government initiatives or increased capital spending, leading to growth for companies and higher shareholder value.
For instance, schemes like Production-Linked Incentives (PLI) in electronics and automobile manufacturing sectors illustrate this approach.
These strategies focus on specific catalysts rather than broad market conditions and typically have a short-term investment horizon.
However, accurately predicting the timing and impact of these events can be challenging, leading to high price volatility within a short timeframe. Additionally, investors must consider transaction costs and taxes.
What are the Different Types of Event-Driven Strategies?
a) Merger and Acquisition Arbitrage: Inve
