Investors Perceptions in the Last Article Review

In many cases, there are misconceptions about their ability to provide superior results in different kinds of market conditions. Yet, there are times, when these tools have been successful in helping investment managers and professionals to exploit these disparities. In this case, more research is needed to show why so many investors believe. That hedging and derivatives are important tools in providing superior returns.

However, Qiao (2012) found that hedging strategies will vary depending upon the levels of risk investors are seeking out. This means that they will more than likely will use derivatives to reduce threats in areas such as equity securities. Whereas, those who want to obtain higher returns will utilize derivates to increase their percentage gains. (Qiao, 2012)

The information from this source is useful in demonstrating how different classes of investors' will have contrasting attitudes and uses for derivates in relation to hedging. However, to provide more conclusive evidence, more research needs to be conducted on other categories of investors and traders who are utilizing these areas. This is because the study focused on the Taiwan Stock Exchange. If there was a broader examination on the various indices around the world, is the point more conclusive information can be provided.

In the case of institutional investors (i.e. small, medium and large businesses), Pennings (2004) found that these practices are common among firms. This is because they determined that they are concerned about their overall levels of perception, exposure and decision making associated with risk. Hedging and use of derivatives is one way they can account for any kind of uncertainty. (Pennings, 2004)

The information from this source is useful in demonstrating how many different kinds of firms will utilize derivatives. The biggest area where this information is ambiguous is identifying the various industries which are utilizing these strategies. As a result, further research needs to be conducted to identify and determine what factors are impacting numerous sectors and the mindset of managers.

Moreover, Moehrle (2005) determined that firms which are using hedging strategies in conjunction with derivates were more likely have greater stability and higher levels of earnings growth. This is showing how these strategies can be helpful in providing more certainty about future prospects. At the same time, it allows managers to effectively address any kind of uncertainties they are facing. (Moehrle, 2005)

The information from this source is useful in demonstrating how hedging and derivatives trading is providing firms with more clarity in their earnings and projections. However, the evidence is somewhat ambiguous by not providing a list of companies which have utilized this approach and its effect on their bottom line results. At the same time, it is failing to account for various size businesses and industries that are involved in these activities. Further research is needed to show those firms which are directly using this strategy and the long-term impact it is having on them.

References

Aabo, T. (2011). Founder Family Influence and Foreign Exchange Risk. International Journal of Finance, 7 (1), 33 -- 67.

Bezzina, F. (2012). Exploring Factors Affecting the Proper Use of Derivatives. Managerial Finance, 38 (4), 414 -- 435.

Brown, G. (2001). Are Firms Successful at Select Hedging? The Journal of Business, 79 (6), 2925 -- 2949.

Khediri, K. (2010). Do Investors Really use Derivatives? Journal of Risk Finance, 11 (1), 62 -- 74.

Koonce, L. (2008). Investor Relations to Derivatives Use. Review Account Standards, 13, 571 -- 597.

Moehrle, J. (2005). Management's Disclosure of Hedging Activity. International Journal of Managerial Finance, 2 (1),…