The Impact of Hedge Funds on the Volatility of Seasoned Equity Offerings

Abstract

To what extent can hedge funds influence stock price volatility surrounding the announcements of major corporate events? To answer this question, this paper examines one of the more common major corporate events: seasoned equity offerings (SEOs). We test the impact of hedge fund variables on idiosyncratic and systematic volatility for a variety of short-run and long-run periods around the initial announcement dates for SEOs. We find that stock price volatility decreases when (i) the total assets under management by the hedge fund industry increases, (ii) the number of hedge funds increase (iii) the size of individual hedge funds decreases, (iv) leverage is more likely to be used by a hedge fund, and (v) an arbitrage strategy (as opposed to an event-driven or equity hedge) strategy is used. We can find no consistent evidence that hedge funds performance during the SEO announcement month influences volatility.