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Over the hedge: Do exporters practice selective hedging?

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  • Fabling, Richard
  • Grimes, Arthur

Abstract

What determines exporters’ exchange rate hedging decisions and do exporters attempt to “time the market”? We use a unique unit record longitudinal administrative dataset on firm exports to find the determinants of exporters’ currency hedging choices. Determinants include financial fragility, prior hedging experience, and natural hedge opportunities. In addition, firms alter their hedging ratios when the currency has recently trended in one direction. We test whether such behaviour reflects firm characteristics (such as pricing power). We find that these responses are ubiquitous for all but large firms and for all times other than when the exchange rate is near its extreme high or low historical values. These results are consistent with most firms practicing selective hedging (market timing) behaviour that reflects a belief in exchange rate momentum effects. However, this behaviour appears sub-optimal since momentum effects are statistically absent from the underlying exchange rate data.

Suggested Citation

  • Fabling, Richard & Grimes, Arthur, 2014. "Over the hedge: Do exporters practice selective hedging?," Motu Working Papers 291376, Motu Economic and Public Policy Research.
    • Handle: RePEc:ags:motuwp:291376
    DOI: 10.22004/ag.econ.291376
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    Cited by:

    1. is not listed on IDEAS
    2. Houldsworth, Elizabeth & Marra, Marianna & Brewster, Chris & Brookes, Michael & Wood, Geoffrey, 2021. "Performance appraisal and MNEs: The impact of different capitalist archetypes," International Business Review, Elsevier, vol. 30(5).
    3. Håkan Jankensgård, 2019. "Does Managerial Power Increase Selective Hedging? Evidence from the Oil and Gas Industry," JRFM, MDPI, vol. 12(2), pages 1-18, April.
    4. Richard Fabling & Lynda Sanderson, 2015. "Exchange rate fluctuations and the margins of exports," Motu Working Papers 15_05, Motu Economic and Public Policy Research.
    5. Thethach Chuaprapaisilp & Nathapong Rujiravanich & Bovornrach Saengsith, 2018. "FX Hedging Behavior among Thai Exporters: A Micro-level Evidence," PIER Discussion Papers 81, Puey Ungphakorn Institute for Economic Research.
    6. Miles Parker, 2016. "How exporters set prices: evidence from a large behavioural survey," Reserve Bank of New Zealand Discussion Paper Series DP2016/01, Reserve Bank of New Zealand.

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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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