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Currency derivatives for hedging: New evidence on determinants, firm risk, and performance

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  • Sung C. Bae
  • Hyeon Sook Kim
  • Taek Ho Kwon

Abstract

Employing firm‐level data for Korean firms, we find that firms with more export, more foreign currency debt, and higher exchange rate exposures are likely to use more currency derivatives for hedging. 2SLS regressions reveal that as more currency derivatives use does not lead to lower firm risk, such transactions, especially sell transactions, bring in higher firm values. Further, currency derivatives use by firms with high exposures is associated with lower firm risk but lower firm values as well. These findings suggest that currency derivatives work in hedging risk and protecting values for firms with low and manageable exposures.

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  • Sung C. Bae & Hyeon Sook Kim & Taek Ho Kwon, 2018. "Currency derivatives for hedging: New evidence on determinants, firm risk, and performance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(4), pages 446-467, April.
    • Handle: RePEc:wly:jfutmk:v:38:y:2018:i:4:p:446-467
    DOI: 10.1002/fut.21894
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