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Corporate Hedging Policy and Equity Mispricing


  • J. Barry Lin
  • Christos Pantzalis
  • Jung Chul Park


We show that firms' use of derivatives is negatively associated with stock mispricing. This result is consistent with the notion that hedging improves the transparency and predictability of firms' cash flows resulting in less misvaluation. Furthermore, we show that the negative relationship between mispricing and hedging is particularly strong when market value is below fundamental value, which is consistent with prior evidence that hedging has a positive impact on firm valuation. Finally, we provide evidence that a "spread-out" hedging policy that entails the use of a variety of derivative contracts can be more effective in reducing mispricing. Copyright (c) 2010, The Eastern Finance Association.

Suggested Citation

  • J. Barry Lin & Christos Pantzalis & Jung Chul Park, 2010. "Corporate Hedging Policy and Equity Mispricing," The Financial Review, Eastern Finance Association, vol. 45(3), pages 803-824, August.
  • Handle: RePEc:bla:finrev:v:45:y:2010:i:3:p:803-824

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    Cited by:

    1. repec:kap:rqfnac:v:49:y:2017:i:1:d:10.1007_s11156-016-0586-9 is not listed on IDEAS
    2. Andrikopoulos, Andreas, 2015. "Truth and financial economics: A review and assessment," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 186-195.
    3. repec:spr:busres:v:11:y:2018:i:1:d:10.1007_s40685-017-0052-0 is not listed on IDEAS
    4. Chansog Kim & Christos Pantzalis & Jung Chul Park, 2014. "Do Family Owners Use Firm Hedging Policy to Hedge Personal Undiversified Wealth Risk?," Financial Management, Financial Management Association International, vol. 43(2), pages 415-444, June.
    5. Arnold, Matthias M. & Rathgeber, Andreas W. & Stöckl, Stefan, 2014. "Determinants of corporate hedging: A (statistical) meta-analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 443-458.

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