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Corporate hedging policy and the accuracy of analysts' forecasts : evidence from large, non-financial U.S. corporations

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Corporate hedging policy and the accuracy of analysts' forecasts : evidence from large, non-financial U.S. corporations

Rusu, Gabriela (2002) Corporate hedging policy and the accuracy of analysts' forecasts : evidence from large, non-financial U.S. corporations. Masters thesis, Concordia University.

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Abstract

This paper examines the accuracy of forecasts of financial analysts in light of the hedging policies of the S&P 500 non-financial companies over the 1994-1997 period. Given that hedging reduces the volatility of cash flows, we ask whether it allows financial analysts to provide more accurate forecasts for firms that hedge than for firms that do not. Three data sources are used to construct the data set for this study: the Edgar database, Compustat and I/B/E/S. Univariate and multivariate tests are run in order to determine the effect of the usage of derivative products for hedging purposes, as well as that of the level of the usage, on analysts' forecasts accuracy. Only interest rate risk and foreign exchange risk hedging are considered, separately and together as the total hedging variable. The empirical results show that neither the involvement, nor the degree of involvement in hedging activities of a firm will result in more accurate forecasts, when considering the 1-year forecasts. Interest rate hedging and overall hedging do not impact on the accuracy of forecasts in a statistically significant way. However, surprisingly, the results show an increase in the forecast error when the company is involved in higher levels of foreign exchange hedging. The results also show evidence that the further away in time the forecast is made, the more relevant the hedging policies of a company are to the analyst.

Divisions:Concordia University > John Molson School of Business
Item Type:Thesis (Masters)
Authors:Rusu, Gabriela
Pagination:vi, 95 leaves ; 29 cm.
Institution:Concordia University
Degree Name:Theses (M.Sc.Admin.)
Program:John Molson School of Business
Date:2002
Thesis Supervisor(s):Tirtiroglu, Dogan
ID Code:1731
Deposited By:Concordia University Libraries
Deposited On:27 Aug 2009 13:21
Last Modified:08 Dec 2010 10:22
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