Are Firms Successful at Selective Hedging?*
The journal of business
________________________________________________________________________ Abstract This paper analyzes derivative security positions reflecting the corporate risk management policies of 44 companies in the gold mining industry. We document substantial time-series variation in risk management policies and a tendency for firms to decrease hedging as prices move against them-behavior contrary to that predicted by risk management theory. These results, as well as survey evidence we collect, indicate
... e collect, indicate that corporate risk management policies are often influenced by attempts to time market prices, so-called "selective" hedging. Although estimates show a statistically significant ability of producers to favorably adjust hedge ratios, this appears to be caused by samplespecific negative autocorrelation in quarterly gold prices. Economic gains to selective hedging are very small and less than for an alternative technical trading strategy. In addition, we find no evidence that selective hedging leads to superior operating or financial performance, nor is it associated with proxies for superior market information.