nep-bec New Economics Papers
on Business Economics
Issue of 2005‒08‒28
three papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies By Chang Dan; Hong Gu; Kuan Xu
  2. Developer's Expertise and the Dynamics of Financial Innovation: Theory and Evidence By Helios Herrera; Enrique Schroth
  3. Is lumpy investment really irrelevant for the business cycle? By Tommy Sveen; Lutz Weinke

  1. By: Chang Dan; Hong Gu; Kuan Xu (Department of Economics and Department of Mathematics and Statistics, Dalhousie University)
    Abstract: This paper analyzes the impact of hedging activities of large Canadian oil and gas companies on their stock returns and firm value. Differing from the existing literature this research finds that some of these relationships are nonlinear based on the framework of nonlinear generalized additive models. The research based on this more general methodology reveals some interesting findings on oil and gas hedging activities. The large Canadian oil and gas firms are able to use hedging to protect downside risk against the unfavorable oil and gas price changes. But oil hedging appears to be more effective in protecting stock returns than gas hedging is when downside risk presents. In addition, oil and gas reserves are more likely to play a positive (negative) role when the oil and gas prices are increasing (decreasing). Finally, hedging, in particular hedging on gas, together with profitability, investment and leverage, has certain impacts on firm value.
    Keywords: oil; gas; hedging; return; firm value; general additive models ; Canada
    JEL: G10 G30
    Date: 2005–08–22
  2. By: Helios Herrera; Enrique Schroth
    Date: 2005–08–19
  3. By: Tommy Sveen (Norges Bank); Lutz Weinke (Universitat Pompeu Fabra)
    Abstract: New-Keynesian (NK) models can only account for the dynamic effects of monetary policy shocks if it is assumed that aggregate capital accumulation is much smoother than it would be the case under frictionless firm-level investment, as discussed in Woodford (2003, Ch. 5). We find that lumpy investment, when combined with price stickiness and market power of firms, can rationalize this assumption. Our main result is in stark contrast with the conclusions obtained by Thomas (2002) in the context of a real business cycle (RBC) model. We use our model to explain the economic mechanism behind this difference in the predictions of RBC and NK theory.
    Keywords: Lumpy investment, Sticky prices
    JEL: E22 E31 E32
    Date: 2005–08–19

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