The Value of Corporate Hedging and Market Expectations

Abstract

We analyze some simple models such as case Tufano and show that companies in its decision to hedging must be guided by market expectations about the dynamics of major risk factors. On the basis of the proposed models we calculate the optimal hedge ratio taking into account the forecast changes in risk factors and its volatility. Based on historical data of the gold market the theoretical hedge ratios are compared with the hedge ratios of companies in the gold mining sector. An unsuccessful hedging is discussed on the case of the Russian gold mining company "Polymetal".