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"Corporate Risk Management: The Hedging Footprint"

by Prof. Peter Mackay, Hong Kong University of Science and Technology

 

Date   27 Nov 2018 (Tue)
Time   11:00am - 12:30pm
Venue   Rm M714, 7/F, Li Ka Shing Tower, PolyU
     
Abstract  

How much do firms hedge? How far ahead do they hedge? Why do they hedge? As important as they are, these questions are still largely unresolved for lack of data: Large-sample studies suffer from coarse measures and studies with precise measures rely on small-sample, proprietary data. We propose an alternative approach that extracts corporate risk-management policy from publicly-available data. The Key insight is that the way derivatives positions are recorded (hedge accounting or mark-to-market) leaves footprints we can uncover by regressing a firm’s sales, costs, and profits on changes in past futures prices and current spot and futures prices. We apply our approach to sample of oil refiners, validating it against stated hedging policies derived from financial-statement footnotes and by qualifying past empirical findings.

All are welcome!