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Are Firms Successful at Selective Hedging?

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Author Info
Gregory W. Brown (University of North Carolina at Chapel Hill)
Peter R. Crabb (Northwest Nazarene University)
David Haushalter (The Pennsylvania State University)

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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.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB790607
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 6 (November)
Pages: 2925-2950
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:6:p:2925-2950

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Postal: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
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  1. Bartram, Söhnke M. & Brown, Gregory W. & Conrad, Jennifer, 2006. "The Effects of Derivatives on Firm Risk and Value," MPRA Paper 9831, University Library of Munich, Germany, revised 24 Jul 2008. [Downloadable!]
  2. Aretz, Kevin & Bartram, Söhnke M., 2009. "Corporate Hedging and Shareholder Value," MPRA Paper 14088, University Library of Munich, Germany. [Downloadable!]
  3. Uluc Aysun & Melanie Guldi, 2008. "Increasing Derivatives Market Activity in Emerging Markets and Exchange Rate Exposure," Working papers 2008-06, University of Connecticut, Department of Economics, revised Oct 2008. [Downloadable!]
  4. Kapitsinas, Spyridon, 2008. "Derivatives Usage in Risk Management by Non-Financial Firms: Evidence from Greece," MPRA Paper 10945, University Library of Munich, Germany. [Downloadable!]
  5. Bartram, Söhnke M. & Brown, Gregory W. & Minton, Bernadette, 2009. "Resolving the Exposure Puzzle: The Many Facets of Exchange Rate Exposure," MPRA Paper 14041, University Library of Munich, Germany. [Downloadable!]
  6. Sohnke M. Bartram, 2002. "Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations," Finance 0207001, EconWPA. [Downloadable!]
    Other versions:
  7. Chang Dan & Hong Gu & Kuan Xu, 2005. "The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies," Department of Economics at Dalhousie University working papers archive hedging, Dalhousie, Department of Economics. [Downloadable!]
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