A review of the literature on commodity risk management

This paper analyzes research on commodity risk management by nonfinancial firms and provides a review of the findings to date. We discuss the theories and methodologies used including the models best suited for examining commodity risk management and exposure. In this study, we review how the research to date provides evidence to the following questions. Is commodity risk reflected in share price behavior? Is the use of commodity risk management tools (derivatives) associated with reduced risk? Is there a relationship between the use of commodity risk management and the value of the firm? What other factors are important to commodity risk management? Suggestions are provided for future research in this area.