University of Twente Student Theses


The impact of Hedging strategies and Equity Multiples on stock returns surrounding COVID-19

Nguyen Minh Dieu, Cam (2023) The impact of Hedging strategies and Equity Multiples on stock returns surrounding COVID-19.

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Abstract:To assist investors in an era marked by extreme uncertainty, this two-part thesis examines the intricate relationship between corporate hedging strategies and equity multiples, and their respective impacts on stock returns in the context of listed EU companies during the COVID-19 pandemic times. Part 1: Hedging Strategies and Stock Returns This study bridges the research gap by investigating the correlation between hedging practices and stock returns in the European Union (EU) context, with a particular focus on the COVID-19 pandemic's disruptive landscape from 2017 to 2021. We examined 268 companies listed across multiple Euronext exchanges, including Euronext Paris, Amsterdam, Dublin, Lisbon, and Brussels. Our research also explored the influence of pivotal factors, including the peak pandemic years (2020 and 2021), firm operating sectors, and firm size, on the relationship between hedging and stock returns. Our findings revealed that the complexities surrounding hedging strategies render an assessment of the connection between hedging strategies and stock returns elusive and conducting subsequent quantitative analysis proved to be infeasible. However, these complexities opened opportunities for future research to delve deeper into the impact of corporate strategies on stock returns. Part 2: Equity Multiples and Stock Returns In this part, we investigate the relationship between equity multiples, including Price-to-Earnings (P/E), Price-to-Cash Flow (P/CF), Price-to-Book (P/B) ratios, and risk-adjusted stock returns measured by the Sharpe ratio. We analyzed a dataset of 106 publicly-listed companies on EURONEXT Paris from 2017 to 2021, surrounding COVID-19 periods. Our regression models unveiled a statistically significant positive association between P/CF and P/B ratios and stock returns, while the P/E ratio failed to exhibit significant influence. The study also investigated the moderating effects of pandemic peak years (2020 and 2021), operating sector, and company size on these relationships. Both the impact of COVID-19 peak years and company size revealed noticeable effects on equity multiple-stock return correlations. Meanwhile, the impact of the operating sectors was insignificant. Despite some limitations, our research significantly contributes to the financial literature by combining theoretical frameworks with empirical evidence, providing practical and theoretical implications for the broader finance community.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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