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

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