CURRENCY HEDGING – THE INVESTIGATION OF HEDGING BEHAVIOUR OF MANAGERS IN THAILAND ACROSS THE GLOBAL FINANCIAL CRISIS

Abstract

In an increasingly globalised business environment, firms have significant exposure to exchange rate fluctuations and hence they use hedging techniques to reduce their exposure to such risk. This paper studied the hedging behaviour of 40 firms in Thailand from 2002 to 2014, and attempts to examine if selective hedging was present. While the hedge ratio across this time period was not constant, there was insufficient evidence to prove the pres-ence of selective hedging or disprove the absence of it. Moreover, in determining how much exposure the firms are hedging, the firm characteristics and the exchange rates between the Baht and the foreign currencies (USD, Euro and Yen) were found to be statistically insignifi-cant factors. This study also investigated the increase in hedging behaviour of managers across the Global Financial Crisis of 2008. The firm characteristics are also found to be statistically insignificant in this increase in hedging. While one of the reasons for the surge in hedging could be that managers were irrational in their hedging behaviour, it was challenging to dis-prove that there was a rational response to an expected increase in currency risk exposure just prior to the crisis.