An Empirical Analysis of Corporate Currency Risk Management Policies and Practices
53 Pages Posted: 22 Mar 2019
Date Written: November 9, 2017
Using a unique and extremely granular data set of complete currency spot and derivatives positions for 101 large non-financial corporations, we compare the stated currency risk management policies with the actual strategies executed by these companies. We identify a notable discord between their policies and their practices. We next find that these companies engage in a high degree of currency speculation that seems to be driven by market movements with the results strongest for the heaviest derivatives users. Finally, we show that these companies attempt to time the market even when they are engaged in hedging. Thus, the risk management policies and practices of non-financial corporations are far from what companies say they are and are evidence of a high degree of speculation and especially hedge timing in a market outside of their own core lines of business.
Keywords: currency risk management, derivatives, hedging
JEL Classification: F30, F31, G15, G32
Suggested Citation: Suggested Citation