Optimal Hedging Strategies and Interactions between Firms
AbstractThis paper studies corporate risk management in a context with financial constraints and imperfect competition on the product market. We show that the interactions between firms heavily affect their hedging demand. As a general rule, the firms’ hedging demand decreases with the correlation between firms’ internal funds and investment opportunities. We show that when the hedging demand of a firm is high in the case where investments are strategic substitutes, its hedging demand is low in the case where investments are strategic complements and vice versa. Finally, we also propose another interpretation of our model in terms of technical choice.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp399.
Date of creation: Feb 2002
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Web page: http://www.lse.ac.uk/fmg/
Other versions of this item:
- Frederic Loss, 2012. "Optimal Hedging Strategies and Interactions between Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 79-129, 03.
- Frederic Loss, 2002. "Optimal hedging strategies and interactions between firms," LSE Research Online Documents on Economics 24903, London School of Economics and Political Science, LSE Library.
- Loss, Frédéric, 2012. "Optimal Hedging Strategies and Interactions between Firms," Economics Papers from University Paris Dauphine 123456789/12110, Paris Dauphine University.
- G3 - Financial Economics - - Corporate Finance and Governance
- D29 - Microeconomics - - Production and Organizations - - - Other
- G2 - Financial Economics - - Financial Institutions and Services
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"On the strategic value of risk management,"
IDEI Working Papers
739, Institut d'Économie Industrielle (IDEI), Toulouse.
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