Productivity shocks and hedging: theory and evidence

Marcello Spano' ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: This work compares two models of corporate hedging, to show how optimal investment, debt, and hedging strategy can be strongly depen-dent on the mechanism linking the firm's internal funds to its return on investment. Approximated analytical solutions for hedging are ob-tained to shed light on the di . erent empirical implications associated with the two mechanisms. The latter appear to be distinguishable by observing the correlation between investment and debt under a pro-ductivity shock. Empirical evidence on the two mechanisms provides mixed results

Keywords: Hedging; Investment; Debt; Productivity shocks (search for similar items in EconPapers)
JEL-codes: G19 G31 G32 (search for similar items in EconPapers)
Date: 2003-01-01
New Economics Papers: this item is included in nep-fin and nep-rmg
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