Selective Hedging, Information Asymmetry, and Futures Prices*

Abstract

Evidence from hedging practices suggests that firms will only hedge if they expect unfavorable events to arise. Stulz (1990) argues that selective hedging will only enhance value when the firm has an information advantage over the market, which enables the firm to foresee price movements. In markets with a significant degree of information asymmetry where hedgers are oligopolists with superior knowledge concerning supply and demand, like oil and gas futures, we contend that these companies will selectively hedge oil and gas price movements, causing sharp price adjustments upon resolution of information asymmetry. Using aggregate analysts' surprise as a proxy for the degree of information asymmetry, we show that positive aggregate surprises lead to a price decline for futures, which indicates that these firms unload their futures when the outlook is favorable.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 22 citations exist upstream.