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The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry
Author(s) -
Tufano Peter
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00042
Subject(s) - volatility (finance) , gold mining , cash flow , diversification (marketing strategy) , stock (firearms) , economics , leverage (statistics) , valuation (finance) , econometrics , financial economics , monetary economics , business , finance , statistics , mechanical engineering , chemistry , marketing , engineering , mathematics
This paper studies the exposure of North American gold mining firms to changes in the price of gold. The average mining stock moves 2 percent for each 1 percent change in gold prices, but exposures vary considerably over time and across firms. As predicted by valuation models, gold firm exposures are significantly negatively related to the firm's hedging and diversification activities and to gold prices and gold return volatility, and are positively related to firm leverage. Simple discounted cash flow models produce useful exposure predictions but they systematically overestimate exposures, possibly due to their failure to reflect managerial flexibility.