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Hedge Fund
Scholarly Compositions - Featured Authors
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Dr. Gerald Gay
Professor and Chair
Department of Finance
J. Mack Robinson College of Business
Georgia State University
Academic Home Page
Brief Biography:
Gay's expertise is in
the areas of investments and derivative markets. His research and
professional interests center on the valuation of derivative
instruments, their use by corporations, and the regulation of
derivative markets. Gay has published over 50 articles including in
the Journal of Financial Economics, Journal of Futures Markets,
Journal of Business and Journal of Finance. Gay has served as the
chief economist of the U.S. Commodity Futures Trading Commission in
Washington, D.C.
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The Global Market for OTC Derivatives: An Analysis of Dealer
Holdings
by Gerald D. Gay & Ekaterina E. Emm
Georgia State University
September 23, 2003
Abstract
We provide a descriptive examination of the trading
activities of one of the most important intermediaries in global
financial markets - the OTC derivatives dealer. These dealers
play a central role in the provision of derivative products and
in the intermediation of market risks faced by financial and
non-financial firms alike. Utilizing a unique database, we
analyze the derivatives holdings of 264 dealers spanning 34
countries over the period 1995-2001. We document the geographic
composition of dealers on both country and regional levels as
well as analyze trends in dealer holdings on an aggregate and
individual product level. We further analyze the extent of
global merger activity among dealers and resulting consolidation
effects. Finally, we investigate at the individual dealer level
the extent and evolution of their array of product offerings.
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On the Optimal Mix of Corporate Hedging Instruments: Linear
versus Non-linear Derivatives
by Gerald D. Gay, Jouahn Nam, & Marian Turac
Georgia State University, Pace University, & Oklahoma State
University
July 24, 2002
Abstract
We examine how corporations should choose their optimal mix of
linear and non-linear derivatives. We present a model in which a
firm facing both quantity (output) and price (market) risk
maximizes its expected profits when subject to financial
distress costs. The optimal hedging position generally is
comprised of linear contracts, but as the levels of quantity and
price risk increase, the use of linear contracts will decline
due to the risks associated with over-hedging. At the same time,
a substitution effect occurs towards the use of non-linear
contracts. The degree of substitution will depend on the
correlation between output levels and prices. Our model also
allows us to provide insight into the relation between a firm's
derivatives usage and its transaction-cost structure.
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Asymmetric Information and Corporate Derivatives Use
by Gerald D. Gay, Peter J. Dadalt, & Jouahn Nam
Georgia State University, Morgan State University, & Pace
University
July 10, 2001
Abstract
We investigate the relationship between derivatives use and the
extent of asymmetric information faced by the firm. Using
alternative analyst forecast proxies for asymmetric information,
we find evidence that both the use of derivatives and the extent
of derivatives usage is associated with lower asymmetric
information. Specifically, for firms using derivatives (notably
currency derivatives) we find that analysts' earnings forecasts
have significantly greater accuracy and lower dispersion. These
findings support the conjectures of DeMarzo and Duffie (1995)
and Breeden and Viswanathan (1998) who argue that hedging
reduces noise related to exogenous factors and hence decreases
the level of asymmetric information regarding a firm's earnings.
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The Underinvestment Problem and
Corporate Derivatives Use
by Gerald D. Gay & Jouahn Nam
1998
Abstract
We
analyze the underinvestment problem as a determinant of
corporate hedging policy. We find evidence of a positive
relation between a firm’s derivatives use and its growth
opportunities, as proxied by several alternative measures. For
firms with enhanced investment opportunities, derivatives use is
greater when they also have relatively low cash stocks. Firms
whose investment expenditures are positively correlated with
internal cash flows tend to have smaller derivatives positions,
which suggests potential natural hedges. Our findings support
the argument that firms’ derivatives use may partly be driven by
the need to avoid
potential underinvestment problems.
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| HEDGE FUND RISK AND OTHER
DISCLOSURES |
Hedge funds, including fund of funds (“Hedge
Funds”), are unregistered private investment partnerships, funds or
pools that may invest and trade in many different markets,
strategies and instruments (including securities, non-securities and
derivatives) and are NOT subject to the same regulatory requirements
as mutual funds, including mutual fund requirements to provide
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