Hedge Funds and the Positive Idiosyncratic Volatility Effect

Business team worker doing stock market analysis inside hedge fund office
Public lectures / seminars

We’re sorry.
This event has ended.

See our upcoming events.

Thursday 18 May 2023

02:00 PM - 03:30 PM



Event details

This event will discuss the volatility effect of hedge funds.


While it is established that idiosyncratic volatility has a negative impact on the cross-section of future stock returns, this relationship is largely unexplored for hedge funds.

We document that hedge funds with high idiosyncratic volatility outperform due to the positive return effect of idiosyncratic volatility in their equity portfolio holdings. Hedge funds select stocks wisely. They pick high volatility stocks when they are undervalued or experience positive earnings surprises. They shy away from high volatility stocks when they are overvalued or display lottery-like payoffs. Hedge funds also trade derivatives in a way to profit from the positive volatility effect.


Florian Weigert is Professor of Financial Risk Management at the University of Neuchâtel, Switzerland. His research focuses on empirical asset pricing, hedge funds, mutual funds, behavioral finance, and risk management. His research projects investigate, among others, the determinants of the cross-section of stock and option returns, performance measurement for hedge- and mutual funds, and the impact of investors’ behavioral biases. His work has been presented at leading academic conferences (such as the AFA, EFA, and FIRS meetings) and published in top finance journals (such as the Review of Financial Studies, Journal of Financial Economics, the Review of Finance, and the Journal of Financial & Quantitative Analysis).

Florian obtained his Ph.D. in Finance with Summa Cum Laude from the University of Mannheim. Before joining the faculty of Neuchâtel, he was an Assistant Professor at the University of St. Gallen. He was a Visiting Scholar at New York University, Georgetown University, the University of Texas at Austin, and Georgia State University.