The international oil price kept rising and fluctuated dramatically in recent years. The demand of oil from 2004 was much higher than what used to be forecast. Since oil business always ties with political views, changes in politics make the international oil price fluctuate more dramatically and it is much harder for the companies to forecast the trend of oil price. Facing the problems of international oil price rise and fluctuation, shipping companies try to use hedge to eliminate risk, besides signing long-term contract for a stable supply of oil. But some financial reports show that some shipping companies lost money in operating hedge.
This study tries to investigate the relationship between the application of hedgy and company stock returns when shipping companies face the problem of international oil price rise and fluctuation. The objectives are 1) to test whether to apply hedge is related to the stock return during the research period; 2) to test how the amount is operated in hedge based on total sales amount is associated with the stock return. The results show that the variables of using hedge or not, international oil price and debit ratio have negative correlations with stock return of shipping industry. The variables, BDI and growth ratio, have positive correlations with stock return. This study also explains how the increase usage of hedge will increase firms’ exposure and the volatility of stock earning during the period in which the oil price constantly goes up.

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