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Is hedging successful at reducing financial risk exposure?

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  • Maria João Jorge
  • Mário Gomes Augusto

Abstract

This article analyses whether firms use risk management instruments for hedging or speculative purposes. First, by analysing the relationship between the firm’s stock returns and financial risks in 567 Euronext firms, we measure the firm’s exposure to risk. Next, we investigate the effect of hedging in such exposures, addressing simultaneously the endogeneity of hedging decision through a treatment effect methodology. We have found that firms in our sample display higher percentages of exposure, when weighed against preceding studies, and confirmed that hedging reduces the level of the underlying financial exposure, concluding that firms use risk management instruments with hedging purposes.

Suggested Citation

  • Maria João Jorge & Mário Gomes Augusto, 2016. "Is hedging successful at reducing financial risk exposure?," Applied Economics, Taylor & Francis Journals, vol. 48(39), pages 3695-3713, August.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:39:p:3695-3713
    DOI: 10.1080/00036846.2016.1142663
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    Cited by:

    1. Jan Christoph Neumann, 2019. "Hedging Currency Risks? An Evaluation of SMEs in Northern Germany," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 5(2), pages 129-142.

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