Are firms hedging or speculating? The relationship between financial derivatives and firm risk

Nguyen, Hoa and Faff, Robert (2010) Are firms hedging or speculating? The relationship between financial derivatives and firm risk. Applied Financial Economics, 20 10: 827-843. doi:10.1080/09603101003636204

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Author Nguyen, Hoa
Faff, Robert
Title Are firms hedging or speculating? The relationship between financial derivatives and firm risk
Journal name Applied Financial Economics   Check publisher's open access policy
ISSN 1466-4305
0960-3107
Publication date 2010-05
Sub-type Article (original research)
DOI 10.1080/09603101003636204
Open Access Status
Volume 20
Issue 10
Start page 827
End page 843
Total pages 17
Place of publication Oxon, United Kingdom
Publisher Routledge
Collection year 2011
Language eng
Subject C1
150201 Finance
900101 Finance Services
Abstract The focus of this article is an investigation of the relationship between the use of financial derivatives and firm risk using a sample of Australian firms. Our results suggest that this relationship is nonlinear in nature. Specifically, the use of financial derivatives is associated with a risk reduction for moderate derivative users. Derivative usage among extensive derivative users, on the other hand, appears to lead to an increase in firm risk. Nevertheless, compared to firms that do not make use of derivatives, there is no evidence that extensive derivative users are exposed to a risk level in excess of that of nonderivative users. The results are, therefore, indicative of a hedging motive behind the use of financial derivatives. © 2011 Informa plc
Keyword Financial market
Risk assessment
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Faculty of Business, Economics and Law -- Publications
Official 2011 Collection
UQ Business School Publications
 
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Created: Mon, 07 Jun 2010, 08:57:34 EST by Karen Morgan on behalf of UQ Business School