Dynamic risk management

Adriano Rampini, Amir Sufi and S Viswanathan ()

Journal of Financial Economics, 2014, vol. 111, issue 2, 271-296

Abstract: Both financing and risk management involve promises to pay that need to be collateralized, resulting in a financing versus risk management trade-off. We study this trade-off in a dynamic model of commodity price risk management and show that risk management is limited and that more financially constrained firms hedge less or not at all. We show that these predictions are consistent with the evidence using panel data for fuel price risk management by airlines. More constrained airlines hedge less both in the cross section and within airlines over time. Risk management drops substantially as airlines approach distress and recovers only slowly after airlines enter distress.

Keywords: Collateral; Risk management; Commodity prices; Financial distress; Airlines (search for similar items in EconPapers)
JEL-codes: D92 E22 G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (88)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:111:y:2014:i:2:p:271-296

DOI: 10.1016/j.jfineco.2013.10.003

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