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Hedging Increases Company Value, Study Shows (Phys.org)

Researchers found utilities use of weather derivatives led to higher market valuations.

By Shaunacy Ferro | Updated on June 21, 2012

Active risk management practices such as hedging increase a company’s value, according to a forthcoming study in the Journal of Finance. The study examined the effect of weather derivatives on electric and gas utilities to explore how financial innovation influences firm value, investment and financing decisions. Though theoretical research has looked at whether hedging increases company value, it has been difficult to prove in practice because companies do not randomize their hedging policies.

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