Are Firms Successful at Selective Hedging?*

2006/11/01 by Gregory W. Brown, Gregory W. Brown, Peter R. Crabb +2 · 3 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Risk Management in Financial Firms #Insurance and Financial Risk Management #Market Dynamics and Volatility

paper · doi:10.1086/508004

Abstract

We analyze the corporate risk management policies of 44 companies in the gold mining industry. Firms tend to decrease hedging as prices move against them—behavior contrary to that predicted by risk management theory. These results, along with new survey evidence, suggest that firms attempt to time market prices, so-called selective hedging. Although estimates show a statistically significant ability of producers to favorably adjust hedge ratios, this can be attributed to sample-specific negative autocorrelation in gold prices. Economic gains to selective hedging are small, and no evidence suggests that selective hedging leads to superior operating or financial performance.

Cited by

• The Effects of Derivatives on Firm Risk and Value
• The Two Sides of Derivatives Usage: Hedging and Speculating with Interest Rate Swaps
• CORPORATE HEDGING AND SHAREHOLDER VALUE

Related

• The Theory and Practice of Corporate Risk Management: Evidence from the Field
• The Determinants of Firms' Hedging Policies
• Hedging stock price risk with gold during the outbreak of the Corona virus (Case study of export oriented companies)
• How Does Risk Hedging Impact Operations? Insights from a Price-Setting Newsvendor Model
• Hedging and production decisions under uncertainty: A survey