
Billionaire businessman Warren Buffett once said: “We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralised receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
That warning was in Buffett’s 2002 letter to Berkshire shareholders. He also claimed that derivatives were to be deemed as time bombs, ?both for the parties that deal in them and the economic system?. But this view of hedging may now potentially be put to rest by research from Michigan State University’s Hayong Yun and Stanford University’s Francisco P?rez-Gonz?lez, which maintained that electric and gas utilities that used derivatives to hedge against unpredictable weather experienced a “positive and significant effect”. In the study, the researchers examined the value of publicly traded electric and gas utilities both before and after a weather derivatives market opened in the late 1990s. The market allowed the utilities to sell weather futures to investors. Read more investor-based articles:- These figures show UK angels are providing stairway to entrepreneurial heaven
- Britain can soon expect a wave of capital from angel investors
- Investors still “put their head in the sand” to dodge facing their financial portfolios
Share this story