The role of derivative instruments on risk relevance from emerging market non-financial companies

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Abstract

This study aims to investigate the effect of net income volatility, other comprehensive income volatility, and comprehensive income volatility on idiosyncratic volatility. Also, this study includes derivative transactions as moderation variable in testing the equation model. The hypothesis test employed multiple linear regression. The sample in this study is all non-financial companies listed on the Indonesia Stock Exchange from 2012 to 2017. Data used in this study are panel data sourced from www.idx.co.id and www.finance.yahoo.com. The sample selection in this study used a purposive sampling method with a total sample of 246 observations. The results of this study indicate that comprehensive income volatility, net income volatility, and other comprehensive income volatility are not associated with idiosyncratic volatility. Based on the test results suggest that the interaction between derivative transactions and comprehensive income volatility, net income volatility, as well as other comprehensive income volatility, have a positive effect on idiosyncratic volatility.

Keywords: Comprehensive Income, Derivatives, Idiosyncratic, Unsystematic Risk, Volatility

Authors’ individual contribution: Conceptualization – A.F. and W.U.; Methodology – A.F., W.U., H.U., and S.D.M.; Formal Analysis – A.F.; Investigation – A.F.; Writing – Original Draft – A.F.; Writing – Review & Editing – W.U., H.U., and S.D.M.; Supervision – W.U., H.U., and S.D.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M41, G11, G14

Received: 07.03.2020
Accepted: 15.05.2020
Published online: 18.05.2020

How to cite this paper: Firmansyah, A., Utami, W., Umar, H., & Mulyani, S. D. (2020). The role of derivative instruments on risk relevance from emerging market non-financial companies. Journal of Governance & Regulation, 9(2), 45-63. https://doi.org/10.22495/jgrv9i2art3