Changing Horses and Hedging

Franke, Günter

Changing Horses and Hedging

Dateien

Changing_Horses_and_Hedging.pdfGröße: 1.66 MBDownloads: 587

Datum

2003

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Wirtschaftswissenschaften

Publikationstyp

Beitrag zu einem Sammelband

Publikationsstatus

Published

Erschienen in

Challenges to the world economy. Festschrift for Horst Siebert. Berlin: Springer, 2003, pp. 261-275

Zusammenfassung

This paper analyzes the interaction between switching investments and hedging. First, the paper shows that hedging economic risk is not optimal in a world with financial distress costs. We assume that financial distress costs are a declining convex function in the level of financial reserves. These reserves include the market value of outstanding hedging contracts, but not the future cash flow prospects from real activities of the firm because these are highly uncertain. As consequence, very long-term hedging contracts would protect the firm against economic risk, but generate high expected distress costs because the hedging contracts might have very low, negative values. This explain why firms hedge only for rather short periods of time.

Fachgebiet (DDC)

330 Wirtschaft

Schlagwörter

Risk hedging

Zitieren

ISO 690

FRANKE, Günter, 2003. Changing Horses and Hedging. In: Challenges to the world economy. Festschrift for Horst Siebert. Berlin: Springer, 2003, pp. 261-275

BibTex

@incollection{Franke2003Chang-11965,
  year={2003},
  title={Changing Horses and Hedging},
  publisher={Springer},
  address={Berlin},
  booktitle={Challenges to the world economy. Festschrift for Horst Siebert},
  pages={261--275},
  author={Franke, Günter}
}

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Universitätsbibliographie

Ja