Date of this Version
Journal of Financial Economics
For 234 large non-financial corporations using derivatives, we report the magnitude of their risk exposure hedged by financial derivatives. If interest rates, currency exchange rates, and commodity prices change simultaneously by three standard deviations, the median firm's derivatives portfolio, at most, generates $15 million in cash and $31 million in value. These amounts are modest relative to firm size, and operating and investing cash flows, and other benchmarks. Corporate derivatives use appears to be a small piece of non-financial firms’ overall risk profile. This suggests a need to rethink past empirical research documenting the importance of firms’ derivative use.
© 2003. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
derivatives, hedging, risk management, financial instruments
Guay, W. R., & Kothari, S. P. (2003). How Much Do Firms Hedge With Derivatives?. Journal of Financial Economics, 70 (3), 423-461. http://dx.doi.org/10.1016/S0304-405X(03)00179-X
Date Posted: 27 November 2017
This document has been peer reviewed.