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Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis

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  • Luiz Rossi, José

Abstract

This paper analyse the use of foreign exchange derivatives by non-financial publicly traded Brazilian companies from 2007 to 2009. Using balance-sheet data on firms’ positions in derivatives and their foreign exchange exposure, the paper verifies the existence of three groups of derivative users: hedgers, selective hedgers – companies that significantly changed the volume of derivatives used during this period, but used them in line with their currency exposure – and active speculators – companies that adopted positions that would have been inadvisable had the aim been to hedge their currency exposure. Selective hedgers and speculators have one similarity: both tried to obtain gains through the continuous process of domestic currency appreciation. Confirming the optimal hedging literature, the paper shows that several firm characteristics are able to explain the use of derivatives and hedging by firms but market timing in the derivative markets is explained solely by firms’ foreign exposure, corporate governance and the macroeconomic environment.

Suggested Citation

  • Luiz Rossi, José, 2013. "Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 415-433.
  • Handle: RePEc:eee:mulfin:v:23:y:2013:i:5:p:415-433
    DOI: 10.1016/j.mulfin.2013.08.004
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Unanswered Questions on Financialisation in Developing Economies
      by Carolina Alves in Development Economics on 2018-04-05 06:00:13

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    1. Joel Rabinovich & Rodrigo Perez Artica, 2020. "Cash holdings and the financialisation of Latin American nonfinancial corporations," CEPN Working Papers hal-02474321, HAL.
    2. Ewa Karwowski & Engelbert Stockhammer, 2017. "Financialisation in emerging economies: a systematic overview and comparison with Anglo-Saxon economies," Economic and Political Studies, Taylor & Francis Journals, vol. 5(1), pages 60-86, January.
    3. Ekta Sikarwar & Roopak Gupta, 2019. "Economic exposure to exchange rate risk and financial hedging: Influence of ownership as a governance mechanism," Journal of Economic Studies, Emerald Group Publishing, vol. 46(4), pages 965-984, August.
    4. Costas Lapavitsas & Aylin Soydan, 2020. "Financialisation in developing countries: Approaches, concepts, and metrics," Working Papers 240, Department of Economics, SOAS, University of London, UK.
    5. Bartram, Söhnke M., 2019. "Corporate hedging and speculation with derivatives," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 9-34.

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    More about this item

    Keywords

    Speculation; Hedge; Derivatives; Exposure; Risk management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G3 - Financial Economics - - Corporate Finance and Governance

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