Event Driven Trading is any strategy that seeks to exploit pricing inefficiencies; that could be due to scheduled events like takeovers, restructures (including share buy-backs, spin-offs and capital returns.) and release of economic numbers and corporate announcements. Unscheduled events include exogenous political and environmental events. The legendary trader Livermore did not agonize over unexpected events, but rather chalks them up as an unavoidable fact of trading: "Normal business hazards are no worse than the risks a man runs when he goes out of his house into the street or sets out on a railroad journey."
Traders, who follow event driven strategies, attempt to anticipate the outcome of a particular corporate event on the security price as well as the optimal time to commit capital. For example the MSFT-YHOO takeover drama provided many opportunities even in the extended sessions.
Considering no two trading styles can be exclusive, every trader faces such scenario. On one extreme side traders look for merger arbitrague while on the other side there are scalpers trying to exploit liquidity crunch. There have been several papers published about the microstructure as the market stabilizes after a price shock.
One peculiarity about event trading is it gives more importance to the speed at which market reacts to information. That is how the inefficiency is identified and exploited in real time. Hence the development of elementized event news processing systems.
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