If a hedge fund is engaging in equity arbitrage, it is likely that they are pursuing:
Correct Answer: B
* Equity Arbitrage and Hedge Funds: * Equity arbitrage involves taking offsetting positions in related equity securities to profit from price differentials. * A market-neutral strategy eliminates overall market risk by balancing long and short positions, focusing on relative price movements rather than market direction. * Elimination of Other Options: * A: Absolute return aims for consistent returns regardless of market conditions but is not specific to equity arbitrage. * C: Event-driven strategies target corporate events (e.g., mergers), not arbitrage. * D: Non-directional is a general description but lacks specificity compared to market-neutral. References: * ICWIM Module 3: Coverage of hedge fund strategies and market neutrality.
