When Actions Speak Louder than Words: Currency Management in Non-Financial Corporations
56 Pages Posted: 30 Aug 2014
Date Written: August 29, 2014
Abstract
Using a unique data set with complete firm-level components of currency positions, we examine whether large multinational non-financial firms are speculating or hedging as they manage their currency spot and derivatives positions. We find a notable discord between the stated policies of companies and their actions. We also find that the transactions they undertake are associated with market shock variables. Overall, the evidence strongly suggests that these non-financial firms are speculating instead of hedging when they manage their currency spot and derivatives positions. Moreover, we find that even when they are hedging, they are still attempting to time the market.
Keywords: currency risk management, derivatives, hedging
JEL Classification: F30, F31, G15
Suggested Citation: Suggested Citation