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The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies

  • Chang Dan
  • Hong Gu
  • Kuan Xu

    ()

    (Department of Economics and Department of Mathematics and Statistics, Dalhousie University)

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This paper analyzes the impact of hedging activities of large Canadian oil and gas companies on their stock returns and firm value. Differing from the existing literature this research finds that some of these relationships are nonlinear based on the framework of nonlinear generalized additive models. The research based on this more general methodology reveals some interesting findings on oil and gas hedging activities. The large Canadian oil and gas firms are able to use hedging to protect downside risk against the unfavorable oil and gas price changes. But oil hedging appears to be more effective in protecting stock returns than gas hedging is when downside risk presents. In addition, oil and gas reserves are more likely to play a positive (negative) role when the oil and gas prices are increasing (decreasing). Finally, hedging, in particular hedging on gas, together with profitability, investment and leverage, has certain impacts on firm value.

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File URL: http://www.economics.dal.ca/RePEc/dal/wparch/hedging.pdf
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Paper provided by Dalhousie, Department of Economics in its series Department of Economics at Dalhousie University working papers archive with number hedging.

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Length: 45 pages
Date of creation: 22 Aug 2005
Date of revision:
Handle: RePEc:dal:wparch:hedging
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  17. Tufano, Peter, 1996. " Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
  18. Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," The Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January.
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  22. Yanbo Jin & Philippe Jorion, 2006. "Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers," Journal of Finance, American Finance Association, vol. 61(2), pages 893-919, 04.
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