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A hyperbolic model of optimal cash balances

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  • John van der Burg
  • Xiaojing Song
  • Mark Tippett

Abstract

We develop a hyperbolic cash management model based on the Pearson Type IV probability density which minimises extreme variations in firm cash balances. Since the moments for the Type IV probability density are in general undefined and maximum likelihood estimation is compromised by the non-algebraic nature of the Type IV normalising constant, parameter estimation is implemented using the $ {\chi ^2} $ χ2 minimum method. Empirical analysis shows that the Type IV density is highly compatible with the quarterly cash flow data of a randomly selected sample of 100 large U.S. corporations. In contrast, around 60% of the 100 corporations return Jarque–Bera test statistics which are incompatible with the Gaussian probability density.

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  • John van der Burg & Xiaojing Song & Mark Tippett, 2019. "A hyperbolic model of optimal cash balances," The European Journal of Finance, Taylor & Francis Journals, vol. 25(2), pages 101-115, January.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:101-115
    DOI: 10.1080/1351847X.2018.1482834
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    Cited by:

    1. Darya Pyatkina & Tamara Shcherbina & Vadim Samusenkov & Irina Razinkina & Mariusz Sroka, 2021. "Modeling and Management of Power Supply Enterprises’ Cash Flows," Energies, MDPI, vol. 14(4), pages 1-17, February.

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