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The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry

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  • Peter Tufano

    (Harvard Business School)

Abstract

This paper studies the exposure of North American gold mining firms to changes in the price of gold. The average mining stock moves 2 percent for each 1 percent change in gold prices, but exposures vary considerably over time and across firms. As predicted by valuation models, gold firm exposures are significantly negatively related to the firm's hedging and diversification activities and to gold prices and gold return volatility, and are positively related to firm leverage. Simple discounted cash flow models produce useful exposure predictions but they systematically overestimate exposures, possibly due to their failure to reflect managerial flexibility. Copyright The American Finance Association 1998.

Suggested Citation

  • Peter Tufano, 1998. "The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 53(3), pages 1015-1052, June.
  • Handle: RePEc:bla:jfinan:v:53:y:1998:i:3:p:1015-1052
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