Thursday 16 November – from 1:15pm to 2:15pm

“Hedge Funds and the Positive Idiosyncratic Volatility Effect” (with Turan G. Bali)

Florian Weigert, Full Professor of Financial Risk Management at the University of Neuchâtel (Switzerland)

Abstract:

While it is established that idiosyncratic volatility has a negative impact on the cross-section of stock returns, this relation is largely unexplored for hedge funds. We document that hedge funds with high idiosyncratic volatility earn higher future risk-adjusted returns of 6% p.a. than hedge funds with low idiosyncratic volatility. The outperformance arises because hedge funds trade high idiosyncratic volatilitry stocks wisely. They pick high volatility stocks when they are underpriced and short-sell high volatility stocks when they are overpriced. Our results support the notion that hedge funds’ idiosyncratic volatility is a measure of managerial skill.  

Registration, please contact robin@em-lyon.com

Amphi 1075 Ecully campus