Home > Research > Publications & Outputs > How should firms selectively hedge? Resolving t...

Electronic data

  • How should firms selectively hedge? (PREPRINT)

    Rights statement: The final, definitive version of this article has been published in the Journal of Corporate Finance 18 (3) 2012, © ELSEVIER.

    Submitted manuscript, 240 KB, PDF document

Links

Text available via DOI:

View graph of relations

How should firms selectively hedge? Resolving the selective hedging puzzle.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published

Standard

How should firms selectively hedge? Resolving the selective hedging puzzle. / Wojakowski, Rafal.

In: Journal of Corporate Finance, Vol. 18, No. 3, 06.2012, p. 560-569.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

APA

Vancouver

Author

Wojakowski, Rafal. / How should firms selectively hedge? Resolving the selective hedging puzzle. In: Journal of Corporate Finance. 2012 ; Vol. 18, No. 3. pp. 560-569.

Bibtex

@article{38f88b82d30e4a6d85bc1751f4c1d726,
title = "How should firms selectively hedge? Resolving the selective hedging puzzle.",
abstract = "We provide a model of intertemporal hedging consistent with selective hedging, a widespread practice corroborated by recent empirical studies. We argue that the optimal hedge is a value hedge involving total current value of future earnings. More importantly, the hedging decision is independent of risk preferences of the firm or agent. Our closed-form solutions imply several implications for the risk management policy in a firm. In order to lock in profits a hedge increase is recommended in favorable states of nature, while in bad states the firm should decrease the hedge and wait. Our main new empirical implication is that selective hedging should be more prevalent in industries where managers are exposed to convex cash flow structures and are more likely to {"}value hedge{"} their exposures.",
keywords = "Selective hedging, Value hedge, Financial forwards and futures, Long-term exposure",
author = "Rafal Wojakowski",
note = "The final, definitive version of this article has been published in the Journal of Corporate Finance 18 (3) 2012, {\textcopyright} ELSEVIER.",
year = "2012",
month = jun,
doi = "10.1016/j.jcorpfin.2012.02.003",
language = "English",
volume = "18",
pages = "560--569",
journal = "Journal of Corporate Finance",
issn = "0929-1199",
publisher = "Elsevier",
number = "3",

}

RIS

TY - JOUR

T1 - How should firms selectively hedge? Resolving the selective hedging puzzle.

AU - Wojakowski, Rafal

N1 - The final, definitive version of this article has been published in the Journal of Corporate Finance 18 (3) 2012, © ELSEVIER.

PY - 2012/6

Y1 - 2012/6

N2 - We provide a model of intertemporal hedging consistent with selective hedging, a widespread practice corroborated by recent empirical studies. We argue that the optimal hedge is a value hedge involving total current value of future earnings. More importantly, the hedging decision is independent of risk preferences of the firm or agent. Our closed-form solutions imply several implications for the risk management policy in a firm. In order to lock in profits a hedge increase is recommended in favorable states of nature, while in bad states the firm should decrease the hedge and wait. Our main new empirical implication is that selective hedging should be more prevalent in industries where managers are exposed to convex cash flow structures and are more likely to "value hedge" their exposures.

AB - We provide a model of intertemporal hedging consistent with selective hedging, a widespread practice corroborated by recent empirical studies. We argue that the optimal hedge is a value hedge involving total current value of future earnings. More importantly, the hedging decision is independent of risk preferences of the firm or agent. Our closed-form solutions imply several implications for the risk management policy in a firm. In order to lock in profits a hedge increase is recommended in favorable states of nature, while in bad states the firm should decrease the hedge and wait. Our main new empirical implication is that selective hedging should be more prevalent in industries where managers are exposed to convex cash flow structures and are more likely to "value hedge" their exposures.

KW - Selective hedging

KW - Value hedge

KW - Financial forwards and futures

KW - Long-term exposure

U2 - 10.1016/j.jcorpfin.2012.02.003

DO - 10.1016/j.jcorpfin.2012.02.003

M3 - Journal article

VL - 18

SP - 560

EP - 569

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

SN - 0929-1199

IS - 3

ER -