Template-Type: ReDIF-Paper 1.0
Author-Name: Richard Fabling
Author-X-Name-First: Richard	
Author-X-Name-Last: Fabling
Author-Email: richard.fabling@motu.org.nz
Author-Workplace-Name: Motu Economic and Public Policy Research
Author-Name: Arthur Grimes
Author-X-Name-First: Arthur	
Author-X-Name-Last: Grimes
Author-Email: arthur.grimes@motu.org.nz
Author-Workplace-Name: Motu Economic and Public Policy Research and University of Auckland
Title: Over the Hedge: Do Exporters Practice Selective Hedging?
Abstract:  What determines exporters’ exchange rate hedging decisions and do exporters attempt to “time the market”? We use a unique unit record longitudinal administrative dataset on firm exports to find the determinants of exporters’ currency hedging choices. Determinants include financial fragility, prior hedging experience, and natural hedge opportunities. In addition, firms alter their hedging ratios when the currency has recently trended in one direction. We test whether such behaviour reflects firm characteristics (such as pricing power). We find that these responses are ubiquitous for all but large firms and for all times other than when the exchange rate is near its extreme high or low historical values. These results are consistent with most firms practicing selective hedging (market timing) behaviour that reflects a belief in exchange rate momentum effects. However, this behaviour appears sub-optimal since momentum effects are statistically absent from the underlying exchange rate data.
Length: 33 pages
Creation-Date:  2014-01
File-URL: https://motu-www.motu.org.nz/wpapers/14_01.pdf
Number: 14_01
Classification-JEL: D21; F31; G15
Keywords: Currency hedging; optimal hedging; selective hedging; momentum trading
Handle: RePEc:mtu:wpaper:14_01