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Event-driven investing is the hedge fund's investment strategy that exploits pricing inefficiencies that can occur before or after a corporate event, such as a loss, merger, acquisition, or spin-off announcement. We have recently expanded this definition to include additional events such as natural disasters and actions initiated by shareholder activists. However, merger arbitration remains the most well-known investment strategy in this group.
Merger arbitrage, also known as risk arbitrage, is a subset of event-driven investing or trading that exploits market inefficiencies before or after a merger or acquisition. We focus on the likelihood of a deal being approved and how long it will take to complete it.