Hedging, Speculation and Shareholder Value

Posted: 4 Aug 2005 Last revised: 5 Aug 2008

See all articles by Tim Adam

Tim Adam

Humboldt University

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

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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 net present value, and highlights an important motive for firms to use derivatives that the literature has hitherto ignored. Although we find considerable evidence of selective hedging in our sample, the cash flow gains from selective hedging appear to be small at best.

Keywords: Corporate risk management, hedging, speculation, risk premium, hedging benefits

JEL Classification: G11, G14, G32, G39

Suggested Citation

Adam, Tim and Fernando, Chitru S., Hedging, Speculation and Shareholder Value. Journal of Financial Economics, Vol. 81, pp. 283-309, 2006, Available at SSRN: https://ssrn.com/abstract=764887

Tim Adam

Humboldt University ( email )

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

Chitru S. Fernando (Contact Author)

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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