Is hedging successful at reducing financial risk exposure?

Maria João Jorge; Augusto, Mário Gomes

http://hdl.handle.net/10400.8/13074

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Authors

Maria João Jorge

Augusto, Mário Gomes

Abstract(s)

This article analyses whether firms use risk management instruments for hedging or speculative purposes. First, by analysing the relationship between the firm’s stock returns and financial risks in 567 Euronext firms, we measure the firm’s exposure to risk. Next, we investigate the effect of hedging in such exposures, addressing simultaneously the endogeneity of hedging decision through a treatment effect methodology. We have found that firms in our sample display higher percentages of exposure, when weighed against preceding studies, and confirmed that hedging reduces the level of the underlying financial exposure, concluding that firms use risk management instruments with hedging purposes.

Keywords

Financial risk Hedging Risk exposure Derivatives Internal risk instruments

URI

http://hdl.handle.net/10400.8/13074

Citation

Maria João Jorge & Mário Gomes Augusto (2016) Is hedging successful at reducing financial risk exposure?, Applied Economics, 48:39, 3695-3713, DOI: 10.1080/00036846.2016.1142663