Weather study finds that hedging improves firm value

Hedging programmes have a positive effect on a company’s share price and financial performance, according to a new academic study that examines the use of weather derivatives by US utilities

Even as companies have embraced the use of derivatives for hedging in recent years, academics have struggled to find conclusive proof that risk-management programmes actually have a positive effect. Now, a study from Stanford University and the University of Notre Dame has finally presented evidence that hedging is worth the bother, by proving that the introduction of weather derivatives 15 years ago boosted the value of the US power and gas utilities that used them most actively.

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