Hedging, speculation, and risk management effect of commodity futures: Evidence from firm voluntary disclosures

Lili Shao, Jun Shao, Zheng Sun and Huaxin Xu

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: Using the dichotomy distinction idea from the International Financial Reporting Standards, the study proposes a new method to distinguish hedging from speculation based on firms' voluntary disclosures of hedging activities. Accordingly, we categorize commodity futures in Chinese non-financial listed firms into hedging and speculation and find that the price risk management effect of commodity futures is only attributed to the hedging part. To be more precise, using commodity futures for hedging can reduce firms' significantly higher price risk exposures into a slightly lower level. On the contrary, using commodity futures for speculation affects little on firms' price risk exposures. These findings shed light on the underlying channels for the price risk management effect of commodity futures in the real economy.

Keywords: Commodity futures; Hedging; Speculation; Voluntary disclosure (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x1830115x

DOI: 10.1016/j.pacfin.2018.10.013

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