EconPapers    
Economics at your fingertips  
 

Does Corporate Derivative Use Reduce Stock Price Exposure? Evidence From UK Firms

Pinghsun Huang, M. Humayun Kabir and Yan Zhang

The Quarterly Review of Economics and Finance, 2017, vol. 65, issue C, 128-136

Abstract: This paper explores the potential impacts of corporate derivatives use on stock return volatility and market risk. Using a sample of more than 3000 firm-years in the United Kingdom between 2003 and 2009, we find that a firm’s derivatives use is instrumental in reducing its standard deviation of weekly stock returns and systematic risk. This phenomenon is particularly pronounced for firms with foreign currency or interest rate derivatives. Further, we find that the adverse effects of corporate derivatives use on equity return volatility and market risk were significantly greater during the financial crisis of 2007–2009 when firms, on average, were more susceptible to stock price exposures. Ancillary analyses suggest that firms that use foreign currency along with interest rate derivatives benefit from an additional reduction in the volatility of stock returns and systematic risk. These results are robust to numerous controls, including firm size, diversification effects, financial leverage, growth opportunity, industry attributes, self-selection biases, foreign sales, and macroeconomic effects. As a whole, our findings suggest that firms are more likely to use financial derivatives for risk management than for trading purposes.

Keywords: Corporate hedge; Financial derivatives; Risk management (search for similar items in EconPapers)
JEL-codes: G3 M4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976917300716
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:65:y:2017:i:c:p:128-136

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-09-02
Handle: RePEc:eee:quaeco:v:65:y:2017:i:c:p:128-136