| 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. |