Private firms are more likely to use currency derivatives to gamble on the market than to protect themselves from financial risk.
April 1, 2026
Original Paper
The Determinant Factors of Hedging and Speculation with Foreign Exchange Derivatives of Brazilian Private Firms
SSRN · 6504548
The Takeaway
Financial theory assumes that corporations use derivatives like 'plain vanilla' contracts to hedge against volatility. However, a massive dataset of Brazilian contracts reveals that a greater number of firms are using these instruments for speculation, essentially acting as market gamblers rather than cautious risk-managers.
From the abstract
This paper investigates the determinants of hedging and speculation using foreign exchange derivatives among Brazilian private firms. To conduct the analysis, I construct a novel dataset comprising 211,746 plain vanilla foreign exchange derivative contracts executed between 2010 and 2020. From this dataset, I find that the most significant factor positively influencing hedging behavior is foreign exchange exposure. In contrast, profitability and growth opportunities emerge as the key factors neg