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Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis

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  • Luiz Rossi, José

Abstract

This paper analyse the use of foreign exchange derivatives by non-financial publicly traded Brazilian companies from 2007 to 2009. Using balance-sheet data on firms’ positions in derivatives and their foreign exchange exposure, the paper verifies the existence of three groups of derivative users: hedgers, selective hedgers – companies that significantly changed the volume of derivatives used during this period, but used them in line with their currency exposure – and active speculators – companies that adopted positions that would have been inadvisable had the aim been to hedge their currency exposure. Selective hedgers and speculators have one similarity: both tried to obtain gains through the continuous process of domestic currency appreciation. Confirming the optimal hedging literature, the paper shows that several firm characteristics are able to explain the use of derivatives and hedging by firms but market timing in the derivative markets is explained solely by firms’ foreign exposure, corporate governance and the macroeconomic environment.

Suggested Citation

  • Luiz Rossi, José, 2013. "Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 415-433.
  • Handle: RePEc:eee:mulfin:v:23:y:2013:i:5:p:415-433
    DOI: 10.1016/j.mulfin.2013.08.004
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Unanswered Questions on Financialisation in Developing Economies
      by Carolina Alves in Development Economics on 2018-04-05 06:00:13

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    Cited by:

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    3. Ewa Karwowski & Engelbert Stockhammer, 2017. "Financialisation in emerging economies: a systematic overview and comparison with Anglo-Saxon economies," Economic and Political Studies, Taylor & Francis Journals, vol. 5(1), pages 60-86, January.
    4. Vinícius Medeiros Magnani & Marcelo Augusto Ambrozini & Rafael Moreira Antonio & Rafael Confetti Gatsios, 2022. "Hedging Policies to Reduce Agency Costs in Brazil," JRFM, MDPI, vol. 15(8), pages 1-15, August.
    5. Keffala, Mohamed Rochdi, 2021. "“How using derivative instruments and purposes affects performance of Islamic banks? Evidence from CAMELS approach”," Global Finance Journal, Elsevier, vol. 50(C).
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    7. Bartram, Söhnke M., 2019. "Corporate hedging and speculation with derivatives," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 9-34.
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    9. Ewa Karwowski & Hanna Szymborska & Keagile Lesame & Tlhologelo Thoka, 2022. "Determinants of corporate cash holdings in South Africa," WIDER Working Paper Series wp-2022-85, World Institute for Development Economic Research (UNU-WIDER).
    10. Joel Rabinovich & Rodrigo Perez Artica, 2020. "Cash holdings and the financialisation of Latin American nonfinancial corporations," CEPN Working Papers hal-02474321, HAL.
    11. Zuzana Gric & Jan Janku & Simona Malovana, 2023. "What Drives Sectoral Differences in Currency Derivate Usage in a Small Open Economy? Evidence from Supervisory Data," Working Papers 2023/12, Czech National Bank.
    12. Costas Lapavitsas & Aylin Soydan, 2020. "Financialisation in developing countries: Approaches, concepts, and metrics," Working Papers 240, Department of Economics, SOAS University of London, UK.
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    More about this item

    Keywords

    Speculation; Hedge; Derivatives; Exposure; Risk management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G3 - Financial Economics - - Corporate Finance and Governance

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