On the Market Timing and Feedback Effect of Hedging: Evidence from U.S. Oil and Gas Producers

Yongjia Li, Kangzhen Xie

Research output: Contribution to conferencePresentation

Abstract

Using a hand-collected data, we provide evidence that U.S. oil and gas producers generate profits on average from their use of derivatives in hedging, indicating that it is a positive NPV project. The profits are positively related to the intensity of hedging. Further decomposition shows that the profits are strongly and positively related to the market timing component in hedging. The hedging profits reveal nonlinear feedback effects on the hedge ratio in the subsequent period. Winners hedge more when they gain more while losers also hedge more when they lose more. 
Original languageAmerican English
StatePublished - 11 Apr 2015
Externally publishedYes
Event2015 Eastern Finance Association Annual Meeting - New Orleans, LA
Duration: 11 Apr 2015 → …

Conference

Conference2015 Eastern Finance Association Annual Meeting
Period11/04/15 → …

Keywords

  • derivative
  • feedback effect
  • hedging
  • market timing
  • risk management

EGS Disciplines

  • Finance and Financial Management

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