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The Effects of Accounting Practices on Derivative Based Earnings Volatility

Accounting practices can have a large impact on risk management. Understanding hedging and derivatives volatility is important for corporate investors and banks that want to reduce risks and meet investor expectations. Because derivatives and hedging can cause calamity for banks, businesses, and societal stakeholders they make a solid subject for research. A study by Dr. Drakopoulou extended prior research on corporate risk management activities of BHCs and may effect social change by presenting new evidence on the effects of SFAS 133 economic hedges on earnings volatility. Abstract: The goal of this research was to investigate the controversy surrounding the inability of Statement of Financial Accounting Standard No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities to portray the economics of hedging. This research examined whether or not the possibility of increased volatility evolved from economic hedges that do not qualify for hedge accounting under