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Which form of hedging matters — Operational or financial? Evidence from the US oil and gas sector

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  • Laing, Elaine
  • Lucey, Brian M.
  • Lütkemeyer, Tobias

Abstract

We examine the extent and impact of operational and financial hedging on commodity price risk in US oil and gas companies. We find significant exposure to underlying commodity movements. Using a combination of hand collected and publicly available data we examine the impact of hedging strategies. We find no evidence that operational hedging, defined here as multinationality, is effective. In contrast, we find that financial hedging is significant and impactful. Sub-period analysis shows that the effectiveness of financial hedging diminishes when commodity price volatility is high.

Suggested Citation

  • Laing, Elaine & Lucey, Brian M. & Lütkemeyer, Tobias, 2020. "Which form of hedging matters — Operational or financial? Evidence from the US oil and gas sector," Research in International Business and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:riibaf:v:51:y:2020:i:c:s0275531918302794
    DOI: 10.1016/j.ribaf.2019.101088
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    3. Kumar, Sourabh & Barua, Mukesh Kumar, 2022. "A modeling framework and analysis of challenges faced by the Indian petroleum supply chain," Energy, Elsevier, vol. 239(PE).

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    More about this item

    Keywords

    Hedging; Operational hedging; Financial hedging; Commodity exposure;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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