Chartered Financial Analyst (CFA) Practice Exam Level 2

What defines a hard catalyst event?

1. Changes in management or shifts in economic indicators

2. Events that cause immediate and significant impacts on company price

3. Analyst upgrades and downgrades

4. Long-term strategic developments

The correct answer is: Events that cause immediate and significant impacts on company price

A hard catalyst event is characterized by occurrences that lead to immediate and significant impacts on a company's stock price. These events typically create a clear and sudden shift in market perception, driving a rapid response from investors and analysts alike. The immediacy of the price change is a hallmark of such events, as they often coincide with key announcements or actions that directly affect a company's financial performance or its perceived value in the market. These events could include things like mergers and acquisitions, earnings surprises, significant regulatory changes, or major news disclosures. The essential aspect is their ability to disrupt the status quo and prompt a swift revaluation of a company’s shares. In contrast to other options, changes in management or economic indicators can have more gradual effects, analyst upgrades and downgrades might influence investor sentiment over time rather than triggering an immediate reaction, and long-term strategic developments typically unfold over an extended period, which may not produce an instant effect on stock prices. This distinction makes the second choice particularly relevant in understanding the nature of hard catalyst events.