Corporate Hedging and Stock Market Dynamics: Evidence from PSX
DOI:
https://doi.org/10.61506/01.00072Keywords:
Derivative, Stock Returns, Stock Volatility, HedgingAbstract
The purpose of the paper is to examine the impact of corporate hedging practices such as derivative usage on stock market behavior of the firms. The study employed the data of financial sector of Pakistan for firms that are listed in the Pakistan Stock Exchange. The economy of Pakistan faced several challenges and risk during the past five years such as Covid-19, climate change, political uncertainty, and economy policy uncertainty. Hence, it provided a solid ground to investigate the viability of derivative usage in the adverse economic environment. The sample consisted of 111 firms. The results indicated that hedging has significant impact on stock returns and stock returns volatility. The study concludes that firms that use derivative can yield positive stock returns and influence volatility in returns.
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