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Productivity shocks and hedging: theory and evidence

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  • Marcello SPANO'

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    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

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    File URL: http://wp.demm.unimi.it/tl_files/wp/2003/DEMM-2003_026wp.pdf
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    Bibliographic Info

    Paper 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.

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    Date of creation: 01 Jan 2003
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    Handle: RePEc:mil:wpdepa:2003-26

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    Keywords: Hedging; Investment; Debt; Productivity shocks;

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