Productivity shocks and hedging: theory and evidence
AbstractThis 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
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Bibliographic InfoPaper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2003-26.
Date of creation: 01 Jan 2003
Date of revision:
Hedging; Investment; Debt; Productivity shocks;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-18 (All new papers)
- NEP-FIN-2004-07-11 (Finance)
- NEP-RMG-2004-10-18 (Risk Management)
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