Interaction Effects of Corporate Hedging Activities for a Multi-Risk Exposure: Evidence from a Quasi-Natural Experiment

Review of Quantitative Finance and Accounting, Forthcoming, 2020.

49 Pages Posted: 9 Jan 2018 Last revised: 23 Jun 2020

See all articles by Markus Hang

Markus Hang

University of Augsburg

Jerome Geyer-Klingeberg

University of Augsburg - Institute of Materials Resource Management

Andreas Rathgeber

University of Augsburg - Institute of Materials Resource Management

Clemence Alasseur

Électricité de France (EDF)

Lena Wichmann

University of Augsburg - Institute of Materials Resource Management

Date Written: June 23, 2020

Abstract

This study analyzes the interaction effects of corporate hedging activities of electric utility firms facing a manifold risk exposure consisting of several market price risks. We employ 16 recent introductions of markets for trading electricity derivatives as a quasi-natural experiment. The results show that electric utilities generally favor domestic markets for trading electricity derivatives, which might be reduced to their usual high market power and the related good predictability of electricity prices. As a consequence, electricity output hedging eliminates a major part of overall market risk. Further, we identify several spillover effects of electricity output hedging: The sensitivities to input commodity prices decrease, while the sensitivities to foreign exchange rates and interest rates increase. Furthermore, electricity output hedging increases debt capacities and the availability of internal funds. These results are relevant for electric utility firms, market operators, and policy makers, since the selective presence of derivatives markets might let financing policies globally diverge.

Keywords: Corporate Hedging, Output Hedging, Electricity Derivatives, Electric Utility Firms

JEL Classification: G32, G38, L94

Suggested Citation

Hang, Markus and Geyer-Klingeberg, Jerome and Rathgeber, Andreas and Alasseur, Clemence and Wichmann, Lena, Interaction Effects of Corporate Hedging Activities for a Multi-Risk Exposure: Evidence from a Quasi-Natural Experiment (June 23, 2020). Review of Quantitative Finance and Accounting, Forthcoming, 2020., Available at SSRN: https://ssrn.com/abstract=3092157 or http://dx.doi.org/10.2139/ssrn.3092157

Markus Hang (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Werner-von-Siemens-Straße 6
Augsburg, 86159
Germany
0049 821 5983042 (Phone)

HOME PAGE: http://www.mrm.uni-augsburg.de/gruppen/rathgeber/Team/markus_hang/

Jerome Geyer-Klingeberg

University of Augsburg - Institute of Materials Resource Management ( email )

University of Augsburg
Universitätsstr. 2
Augsburg, 86159
Germany
(+49) 821 598-3046 (Phone)

Andreas Rathgeber

University of Augsburg - Institute of Materials Resource Management ( email )

Augsburg, 86159
Germany

Clemence Alasseur

Électricité de France (EDF) ( email )

Paris
France

Lena Wichmann

University of Augsburg - Institute of Materials Resource Management ( email )

Augsburg, 86159
Germany

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