The Determinant Factors of Hedging and Speculation with Foreign Exchange Derivatives of Brazilian Private Firms

Fernando Oliveira

No 620, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper examines the determinant factors of hedging and speculation with foreign exchange derivatives of Brazilian private firms. I build an original database of 211,746 contracts of plain vanilla derivatives of foreign exchange from 2010 to 2020 of these firms. From these contracts, I identify that the most relevant factor that affects positively hedging is foreign exchange exposure, while profitability and growth opportunities are the most relevant factors that negatively affect speculation. I also observe that more private firms speculated than hedged in our sample period. The results are statistically significant and robust to different specifications and econometric techniques, such as those that deal with endogeneity of regressors and measurement errors of binary dependent variables.

Date: 2025-04
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