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Hedging, exposure and rm value: A study of European and U.S. Airlines

Kjonerud, Kristian Andresen; Vinningland, Ove
Master thesis
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URI
http://hdl.handle.net/11250/2624751
Date
2019
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  • Master of Science [1117]
Abstract
For several reasons, the airline industry is a reasonable industry to analyze the

relation between corporate risk exposure, hedging policy, and rm value. We ex-

plore the relationship between hedging, exposure, and rm value among European

and U.S. airlines. More speci cally, how di erences in strategy between Low-Cost

Carriers and Full-Service Airlines a ects this relationship, during the period Jan

1, 2010 { Dec 31, 2017. We analyze the relation between airlines fuel exposure

coe cients and the percentage of next year's fuel requirement hedged. We nd

evidence that hedging reduces exposure to fuel prices. Further, investgating the

relationship between hedging and rm value, we nd that hedging is associated

with higher rm value. However, we discover that di erences in strategy a ects

the hedging premium. Our results con rms that increased hedging activity in

periods of high exposure is not associated with higher rm value. Lastly, we

nd that alleviating the underinvestment problem appear not to be important in

explaining airlines hedging behavior.
Description
Masteroppgave(MSc) in Master of Science in Finance - Handelshøyskolen BI, 2019
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Handelshøyskolen BI

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