An event-driven strategy is one that seeks to take advantage of price inefficiencies that may occur before or after a corporate event. Distressed securities strategy is a type of event-driven strategy. This strategy involves investing in the securities of companies that are in financial distress or have filed for bankruptcy. The idea is that these securities may be undervalued because of the company’s financial situation, and if the company can successfully restructure or improve its financial position, the value of the securities may increase. This strategy is risky because if the company’s financial situation worsens, the value of the securities may decrease further. However, if the strategy is successful, it can provide significant returns.

Choice A is incorrect. Trend followers, also known as managed futures, are a type of hedge fund strategy that seeks to take advantage of upward and downward trends in the market. They do not typically focus on corporate events or pricing inefficiencies related to such events.

Choice B is incorrect. Equity long/short is a hedge fund strategy that involves taking long positions in stocks that are expected to increase in value and short positions in stocks that are expected to decrease in value. While this strategy may sometimes involve capitalizing on pricing inefficiencies, it does not specifically target corporate events like mergers or acquisitions.

Choice C is incorrect. Global macro strategies aim at profiting from large economic or political changes in various countries by implementing opportunistic investment strategies. Although these funds might invest based on anticipated global events, they do not specifically focus on individual corporate events which form the basis for event-driven strategies.

Things to Remember

• Event-driven strategies seek to take advantage of price inefficiencies before or after corporate events
• Distressed securities strategy involves investing in financially distressed companies or those in bankruptcy
• Trend followers (managed futures) focus on market trends, not corporate events
• Equity long/short strategy involves long and short positions based on stock value expectations, not corporate events