Why Event Driven Investing Is Gathering Greater Importance

However, what is termed as event driven investing in financial circles has to do more with what is not known by common people like the pricing opportunities that may take place before an earnings call or merger, or the inefficiencies that are bound to occur after a bankruptcy or spinoff.

What makes event driven equity and investing important

Investment experts do portfolio risk analysis and investing decisions based on a multitude of factors. Among these, possibly the most important is an aggregate hedge fund index they rely upon.

Usually, the hedge fund index depends upon nine sub indices (sub indices taken into consideration can vary according to the practitioner or professional) which include: convertible arbitrage, fixed-income arbitrage, equity market neutral, emerging markets, managed futures, global macro, long/short equity, and dedicated short bias.

Among these investment options, investing has become more important in a tight economy as losses or liquidity shocks are usually short-lived and do not cause major problems for portfolios which have the ability to postpone trading. In a market where safety concerns rule decision-making, event-driven equity offers investment options where profits can be high without the prospects of debilitating losses.

Since the timings of most corporate event are known or can be forecasted, trading strategy can be built around anticipated changes in liquidity and risks contained. Of course, there are also unanticipated events that take place in the economic world, but then investing takes place as a response after the happening and not as a part of pre-planned strategy, usually.

However, today, there are investors who also keep around a war chest just to leverage event-driven equity around an unanticipated event - thus planning for the unanticipated as a pre-planned strategy.

Creation of event-driven funds

While investing had traditionally been leveraged only by large institutional investors, the growth in communication, expertise, and access to information has created an environment where risks associated with corporate events can now be assessed properly even by small institutions.

As a result of technological growth and greater transparency in economic activities, small and medium-sized event driven funds have started to grow.Such specialized funds and investment managers who focus on event driven investing are now focusing on pricing inefficiencies and ignored opportunities present across the capital layout and design of small to mid-sized companies.

By its very nature, event-driven investment provides greater downside protection than other investment avenues, and has become a favorite way of investing funds post-recession.