Why Do Hedgers Hedge? The Role of Ambiguity

This paper investigates whether ambiguity influences hedging behavior in commodity futures markets. Using high‐frequency crude oil futures data, distinct measures of risk and ambiguity are linked to weekly hedging positions from the Commodity Futures Trading Commission (CFTC). The results show that ambiguity significantly affects hedging behavior beyond traditional risk measures. Importantly, different types of hedgers respond to ambiguity in opposing ways: Operational hedgers, who hedge direct exposure to physical prices, reduce their hedging pressure when facing ambiguity, while financial intermediaries, who hedge exposures from client contracts, increasing their hedging pressure. The findings are robust to alternative ambiguity measures, additional controls, and causal identification strategies. Instrument variable evidence supports the intermediary effects; for operational hedgers, results are directionally similar but not longer significant.