Corporate risk management and speculative motives

Gregory W. Brown and Zeigham I. Khokher

Journal of Risk

Abstract: ABSTRACT We develop a simple framework for analyzing corporate risk management decisions when managers have a directional prediction on future price levels. The optimal hedging strategy with “a view” retains a partial exposure and requires rebalancing. This can help explain the active trading behavior of some managers, the large cross-sectional and time series variation in hedge ratios and the prevalence of partial hedging. In addition to providing a simple account of the stylized facts, the model generates new testable implications for corporate hedging policy. We parameterize and estimate the model using foreign exchange hedging data from a large multinational corporation and find support for the model’s predictions.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-risk/2160976/corporat ... -speculative-motives (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ4:2160976

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().