Neutral and Non Neutral Shock Effects on Hedging, Investment and Debt

Marcello Spanò

Discussion Papers from Department of Economics, University of York

Abstract: By trading derivatives on the financial markets, a firm can hedge against the fluctuations of its internal funds, in order to better coordinate investment and financing decisions. This work shows how optimal investment, debt and hedging strategy can be strongly dependent on the mechanism linking the firm's internal funds to its returns on investment. In particular, when internal funds react to a prospective price change (neutral shock), investment and debt would be positively related; when internal funds react to a non neutral productivity shock, investment and debt would be either negatively related (no hedging) or unrelated (hedging).

Keywords: Hedging; investment; debt; volatility; productivity. (search for similar items in EconPapers)
JEL-codes: G19 G31 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-fin
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.york.ac.uk/media/economics/documents/discussionpapers/2001/0108.pdf

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:yor:yorken:01/08

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, University of York Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom. Contact information at EDIRC.
Bibliographic data for series maintained by Paul Hodgson ().