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Productivity shocks and hedging: theory and evidence

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  • Marcello SPANO'

Abstract

This work compares two models of corporate hedging, to show how optimal investment, debt, and hedging strategy can be strongly depen-dent on the mechanism linking the firm's internal funds to its return on investment. Approximated analytical solutions for hedging are ob-tained to shed light on the di . erent empirical implications associated with the two mechanisms. The latter appear to be distinguishable by observing the correlation between investment and debt under a pro-ductivity shock. Empirical evidence on the two mechanisms provides mixed results

Suggested Citation

  • Marcello SPANO', 2003. "Productivity shocks and hedging: theory and evidence," Departmental Working Papers 2003-26, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2003-26
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    More about this item

    Keywords

    Hedging; Investment; Debt; Productivity shocks;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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