THE LATEST RESERVE BANK OF NEW ZEALAND DISCUSSION PAPERS
15 October, 2008
The following Discussion Papers have been released on the Reserve Bank's website. The discussion papers are available at http://www.rbnz.govt.nz/research/discusspapers/
DP2008/14
Over the hedge? Exporters optimal and selective hedging choices http://www.rbnz.govt.nz/research/discusspapers/dp08_14.pdf By Richard Fabling and Arthur Grimes (PDF 409KB)
How do exporting firms manage currency exposures? We examine this issue at the firm level using comprehensive data from
the prototype Longitudinal Business Database recently developed by Statistics New Zealand. We use these data to test
both optimal and selective hedging theories. Optimal hedging theory hypothesises that firms hedging choices depend on
the probability and cost of financial distress, underinvestment risks, scale, managerial risk aversion, information
asymmetry, governance, ownership structures and tax rules. Recent literature suggests that some firms vary hedging
positions relative to their optimal position in a selective attempt to beat the market . We examine whether hedging
behaviour is consistent with hypotheses derived from optimal hedging theories, and test whether hedging positions change
(possibly sub-optimally) when the NZD/AUD is perceived to be high or low relative to an historical average.
ENDS