The Impact of Hedging on the Market Value of Equity : New Models Applied to a New Sample

We examine the abnormal returns of firms that hedge over the period from October 2012 to December 2021 using eight new factor-based asset pricing models or variants. We reject the existence of positive alphas and find the results documented by Nelson, Moffitt, and Affleck-Graves (2005) do not stand up to out of sample testing. Four of eight asset pricing regressions run on value-weighted returns resulted in significant negative monthly alphas ranging from -0.178% to -0.210%. This suggests market imperfections exist making hedging costly for large firms, while insignificant alphas from equally-weighted regressions suggest imperfections do not extend to smaller firms