Hedge funds and the positive idiosyncratic volatility effect

HIGHLIGHTS

• What: The authors use this factor model as the authors focus on equity-oriented hedge fund strategies. The authors show in Section 4.4 that the results are robust when the authors compute Fund IVOL using other factor models, such as the Carhart fourfactor model, the Fama and French five-factor model, and the Fung and Hsieh sevenfactor model. The authors show that the idiosyncratic volatility puzzle (Ang, Hodrick, Xing, and Zhang 2006), which documents a negative association between idiosyncratic volatility and future returns on the stock level, is reversed for stocks with high hedge fund coverage . . .
  

   

  

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