Hedging, Speculation and Shareholder Value

48 Pages Posted: 23 Jul 2003

See all articles by Tim Adam

Tim Adam

Humboldt University

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005


We document that firms in the gold mining industry have consistently realized economically significant cash flow gains from their derivatives transactions. We conclude that these cash flows have increased shareholder value since there is no evidence of an offsetting adjustment in firms' systematic risk. This finding contradicts a central assumption in the risk management literature, that derivatives transactions have zero NPV, and highlights an important motive for firms to use derivatives that the literature has hitherto ignored. We find considerable evidence of selective hedging in our sample, but the cash flow gains from selective hedging are small at best.

Keywords: corporate risk management, speculation, risk premium, forward premium, selective hedging

JEL Classification: G11, G14, G32, G39

Suggested Citation

Adam, Tim and Fernando, Chitru S., Hedging, Speculation and Shareholder Value (February 2005). EFA 2003 Annual Conference Paper No. 270, Available at SSRN: https://ssrn.com/abstract=424881 or http://dx.doi.org/10.2139/ssrn.424881

Tim Adam (Contact Author)

Humboldt University ( email )

Dorotheentr. 1
Berlin, Berlin 10099
+49 (0)30 2093-5641 (Phone)
+49 (0)30 2093-5643 (Fax)

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business ( email )

Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/

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