Chartered Financial Analyst Level 2

Explanation

Mergers and acquisitions (M&A) arbitrage is classified as an event-driven strategy because:

• Event-driven strategies focus on corporate events such as mergers, acquisitions, bankruptcies, restructurings, or other significant corporate actions that create pricing inefficiencies
• M&A arbitrage specifically targets the price discrepancies that occur during merger and acquisition announcements and processes
• The strategy involves taking positions in companies involved in announced M&A deals to profit from the spread between the current market price and the deal price

This differs from:

• Specialist strategies typically refer to niche or specialized approaches in specific markets or instruments
• Equity-related strategies are broader and include directional equity investments, not specifically tied to corporate events

Therefore, the correct classification for a hedge fund strategy focused on mergers and acquisitions arbitrage is event-driven strategy.