Pablo Durán Santomil

Is value creation consistent with currency hedging

This paper analyzes value creation through currency hedging in the Spanish market. The results show that the hedging with derivatives generated an average premium of 1.53% and that foreign currency debt generated 7.52%, with respect to company value approximated by Tobins Q , while operational hedging does not affect company value. Moreover, in half of the observations corresponding to companies that hedged with derivatives, the value premium was between 0.08% and 0.99%. In the case of foreign currency debt, the range was between 1.79% and 10.37%. It demonstrates that the contribution of currency hedging to company value fluctuates considerable according to the volume of financial hedging. Thus, an empirical study of this aspect which only analyses the decision to hedge through dummy variables to define financial hedging, as empirical previous studies, can lead to biased results in terms of estimated premium amounts, because it assumes a homogenous treatment of companies regardless of hedging volumes.This paper analyzes value creation through currency hedging in the Spanish market. The results show that the hedging with derivatives generated an average premium of 1.53% and that foreign currency debt generated 7.52%, with respect to company value approximated by Tobins Q, while operational hedging does not affect company value. Moreover, in half of the observations corresponding to companies that hedged with derivatives, the value premium was between 0.08% and 0.99%. In the case of foreign currency debt, the range was between 1.79% and 10.37%. It demonstrates that the contribution of currency hedging to company value fluctuates considerable according to the volume of financial hedging. Thus, an empirical study of this aspect which only analyses the decision to hedge through dummy variables to define financial hedging, as empirical previous studies, can lead to biased results in terms of estimated premium amounts, because it assumes a homogenous treatment of companies regardless of hedging volumes.

Foreign debt as a hedging instrument of exchange rate risk: a new perspective

This paper analyzes the factors that determine the use of foreign currency debt to hedge currency exposure for a sample of 96 Spanish non-financial companies listed in 2004. Unlike previous empirical studies, which have attempted to explain the use of foreign currency debt using arguments stemming exclusively from hedging theory, we have complemented the analysis with hypotheses from capital structure theory. In particular, we analyze the variables that determine the decision to hedge with foreign currency debt and hedging volume. On the one hand, we found that the decision to hedge with foreign debt is positively related to the level of foreign currency exposure, size, tax loss carry-forwards, managerial risk aversion and the building, R&D and other services sector; and on the other hand, the extent of hedging is related positively to the foreign currency exposure, size, managerial risk aversion and negatively to the costs of financial distress. We also analyze the interaction between foreign currency debt and derivatives in the hedging decision. Moreover, after controlling for the existence and type of currency swaps, we found that this consideration did not have an effect on the determinants of hedging with foreign currency debt.

Estimación de las necesidades de capital mediante modelos internos alternativos al propuesto en Solvencia II (QIS4)

RESUMEN La entrada en vigor del proyecto de Solvencia II transformará por completo el sistema de determinación de las necesidades de capital del asegurador. En el nuevo marco regulatorio se propone un modelo estándar basado en el valor en riesgo (VaR), pero al mismo tiempo, se fomenta la aplicación de modelos internos de autoevaluación y gestión del riesgo. En este trabajo hemos comparado la determinación de capital resultante de aplicar diferentes modelos parciales internos y una medida de riesgo alternativa (TVaR) a través de análisis financiero dinámico (DFA), frente a la propuesta del modelo estándar que se recoge en el cuarto estudio de impacto cuantitativo (QIS4). Para ello, se han utilizado datos del período 2001–2008 en lo referente a los diferentes riesgos de mercado, y la cuenta de resultados agregada del ramo de autos de los últimos diez años para el análisis del riesgo asegurador. El resultado de nuestro trabajo muestra que, en general, las necesidades de capital obtenidas mediante modelos internos superan a las del modelo estándar. Esto significaría que aquellas compañías que utilicen el modelo estándar podrían estar subestimando la cantidad de capital necesaria para cubrir el riesgo en el entorno actual de elevada volatilidad.

Análisis de la decisión de cobertura cambiaria a través del endeudamiento en divisa en el mercado español

RESUMEN Este trabajo analiza los factores determinantes de la decisión de cobertura del riesgo cambiario con deuda en divisa para una muestra de 56 empresas españolas, cotizadas y no financieras en 2004. A diferencia de los trabajos empíricos precedentes que utilizaron exclusivamente argumentos que emanan de las teorías de cobertura, hemos complementado el análisis con hipótesis procedentes de las teorías sobre la estructura de capital. Los resultados obtenidos muestran que el nivel de exposición cambiaria es el principal determinante en la decisión de cobertura con deuda en divisa. Asimismo, también se relaciona con la pertenencia de las empresas a los sectores industrial y de construcción y energía, y negativamente con el tamaño de la empresa y el porcentaje de capital de la empresa en manos de sus directivos. Asimismo, al analizar la interacción entre la deuda en divisa y los productos derivados en la decisión de cobertura, se pudo constatar la significatividad de las mismas variables y, adicionalmente, de la liquidez y el ratio market to book.

MEDICIÓN DEL RIESGO DE RENTA VARIABLE MEDIANTE MODELOS INTERNOS EN SOLVENCIA II

Este trabajo se centra en la elaboracion de un modelo interno para el riesgo de renta variable en Solvencia II. Para ello, se han utilizado datos mensuales de la serie de Ibex 35, Cac-40, Ftse-100 y Dax del periodo Enero de 1992 a Diciembre de 2008. Se han ajustado por maximo verosimilitud el modelo de rendimientos normales sobre el que se sustenta el modelo estandar de QIS4, frente a la mixtura de normales y un modelo de cambio de regimen de Markov. Los modelos analizados son comparados en funcion de criterios de parsimonia y en base a la normalidad de los residuos generados. Posteriormente se analiza la determinacion de capital resultante de los distintos modelos frente al resultante de aplicar la formula estandar del QIS4. Los resultados obtenidos muestran que los capitales necesarios para soportar el riesgo de renta variable son dependientes de la especificacion empleada. / This work focuses on developing an internal model for equity risk under Solvency II. We have used monthly data for the series of Ibex 35, Cac 40, FTSE 100 and Dax in the period between January 1992 and December 2008. This work fits by maximum likelihood method the model of normal returns, based on the standard model of QIS4, compared to the mixture of normal and a Markov regime switching model. The analyzed models are compared based on criteria of parsimony and normality of the residuals. Subsequently, we compared capital requirements resulting from applying these models against the standard formula of QIS4. The results showed that the funds needed to take the equity risk are dependent on the specification used.

Exchange Rate Hedging with Foreign Debt in the Spanish Market

This paper analyzes the factors determining transactional exchange rate hedging with foreign currency debt for a sample of 56 Spanish non-financial companies listed in 2004. In particular, we analyze the variables that determine the decision to hedge with foreign currency debt as well as hedging volume. We also analyze the interaction between the foreign currency debt and derivatives in the hedging decision. Unlike previous empirical studies, which have attempted to explain the use of foreign currency debt through arguments exclusively stemming from optimal hedging theory, we have complemented the analysis with hypothesis from capital structure theory.