Does commodity hedging with derivatives reduce stock price volatility?

Many companies use derivative contracts to hedge their commodity natural exposure, which has been a popular risk management tool for centuries. However, the public debate on whether these derivative activities actually help companies reduce risk is ongoing. We examine this question with data from public companies in the U.S. from 2010 to 2019. Our empirical results show significant evidence that hedging commodity positions reduces stock price volatility. Further-more, the effect is heterogeneous across sectors and companies. The utilities sector benefits the most from commodity hedging, and companies with smaller sizes, higher valuations, and better profitability benefit more from commodity hedging.