Optimal hedge ratio in a biased forward market under liquidity constraints
Barbara Dömötör ()
Finance Research Letters, 2017, vol. 21, issue C, 259-263
The paper1 investigates corporate hedging behavior in a theoretical model focusing on two important influencing factors: liquidity constraints affecting the funding opportunity of the firm and the extent of available hedging position, and speculative motive of risk management based on a bias of forward market. The optimal hedge ratio is analyzed in the function of three determining factors of the corporate utility function: the risk aversion ratio of the firm, the expected value of the hedge position, and the financing costs due to the hedging itself. The large empirical evidence of corporate over- and underhedge can be better understood in the presented framework.
Keywords: Corporate risk management; Optimal hedge ratio; Funding liquidity; Biased forward markets (search for similar items in EconPapers)
JEL-codes: G17 G32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:21:y:2017:i:c:p:259-263
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