How Different Types of Risk in Terms of Bid Ask Spreads, Settlement Risk, Short Squeeze Risk and Financing Risk Affects the Performance of Event Driven Hedge Funds

In this article, we examine how event driven hedge funds performance is affected by risks in terms of bid ask spreads, settlement risk, short squeeze risk and financing risk. The fund manager primarily is targeting financial, micro and macro economic or political events, corporate events that will affect positively the net asset value, NAV, performance of the fund. The portfolio is exposed in long and short positions in bonds and shares according to business events, merger, acquisition, restructuring, legislative changes, and political turmoil. He /she are trying to increase the value of the portfolio by taking into consideration event driven scenario. This strategy is based in public information of forthcoming events that will affect positively or negatively the performance of the hedge funds. The fund manager seeks to take advantage of the price spread between current market prices of corporate securities and their value when the takeover is completed. We find that high bid ask spreads, settlement risk, short squeeze risk and financing risk affects negatively the performance of event driven hedge funds