MBA & MM Theses

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Subject: search.filters.subject.Hedge funds

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    Characteristics of South African firms that hedge against foreign exchange risk
    (2012-01-19) Arnold, Katherine
    Increased globalisation of international business and operations results in an increase of firms facing foreign exchange risk. One of the ways to mitigate this risk is the use of currency derivatives to hedge this foreign exchange exposure. This research explores the characteristics of South African firms that use currency derivatives in contrast to those that do not. The data is collected and calculated from financial statement of firms listed on the main board of the JSE. The variables are tested using t-tests to accept or reject the hypothesis. There are five characteristics which are tested, level of foreign exchange exposure, firm size, propensity to bankruptcy, underinvestment in growth opportunities and level of managerial ownership. The findings for the theories on bankruptcy costs and managerial ownership affecting a firm’s decision to hedge are consistent with previous literature indicating that these characteristics are not significant in determining a firm’s policy on hedging. The literature also supports the test results for the theory on firm size and level of foreign exposure, stating that the larger firms and those with higher levels of foreign exposure are more likely to hedge their foreign exchange risk with the use of currency derivatives. In conflict with international trends high growth opportunities is not seen as significant within the South African context. The key finding is that firm size and level of foreign exchange are the prominent characteristics in the South African context when describing whether a firm will hedge it’s foreign exchange exposure with currency derivatives or not
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    THE SUITABILITY OF CROSS-HEDGING POLYMERS WITH BRENT FUTURES CONTRACTS
    (2011-11-03) Masitwe, April
    This research report investigated the effectiveness of cross-hedging polymers with brent futures contracts for manufacturers of plastic commodity products. The purpose was to find out whether volatile polymer raw material prices could, through this method, be stabilised to create predictable input costs for manufacturers. Global polymers from South East Asia, United States Gulf, North West Europe and South Africa were studied. Each were correlated and the polymer with the best correlation level was selected and cross-hedged through a simulation model to determine how effectively volatilities could be reduced. The results showed that correlations were inconsistent for all polymers. They varied from period to period and from region to region. Correlations (r ) ranged from 0.25 to 0.87. The polymers were found to have a time lag of zero to eight weeks with the brent futures price movements. LDPE, which showed the longest lag period, was found to have unreliable correlation with brent futures. HDPE Injection grade US Gulf, which had the best correlation at 0.87, was cross-hedged. The hedge was found to be ineffective, in that it exposed the manufacturer to more volatile input cost. It was also found to add a second excessively high risk exposure from the margin account that the manufacturer had to maintain in the futures exchange. It was concluded that manufacturers were more cost-effective using an internally managed standby fund to absorb polymer input price because of lesser exposure to risk. However, it could not be guaranteed that the standby option would always be more cost effective
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    Drivers of Hedge Fund Utilization in
    (2011-04-01) Dawson, Robert
    The research assesses the factors that motivate or discourage institutional investors’ capital allocations to the hedge fund industry in South Africa. With the hedge fund industry growing substantially in South Africa and world wide, it is necessary to understand which factors investors consider to be detractors from their possible investment. Conversely, it is necessary to establish the reasons that institutions would allocate a portion of the investable capital to hedge funds. Four factors are identified for each of these two broad categories. The research is conducted though a series of interviews with both hedge funds and fund of hedge funds on the investment side of the research. On the institutional side a number of pension funds, consultants and actuaries have been identified and are interviewed to establish their views on the factors identified. It was found that both hedge funds and investors believe that the hedge fund industry in South Africa is still too young to make judgements on a number of issues. These included whether the hedge funds actually produce alpha, or if it is just enhanced beta. Hedge funds have been established for approximately the last 5 years, in which time South Africa has had a bull market. The interviewees believe that when the markets turn and change into a bear market, many of the hedge funds will be more highly correlated than they believe to be the case. Substantial leverage in the hedge funds, causes greater volatility in the return profile, as well raising the risk of blowing up.