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Article: Liquidity risk and corporate hedging with futures

TitleLiquidity risk and corporate hedging with futures
Authors
KeywordsCorporate strategy
Financial crisis
Firm ownership
Future prospect
Risk factor
Issue Date2011
PublisherBlackwell Publishing Asia. The Journal's web site is located at http://www.blackwellpublishing.com/journals/PER
Citation
Pacific Economic Review, 2011, v. 16 n. 2, p. 229-235 How to Cite?
AbstractThis paper examines the hedging behaviour of a value-maximizing firm that exists for two periods. The firm faces uncertain income and is subject to tax asymmetries with no loss-offset provisions. The firm has access to unbiased futures contracts in each period for hedging purposes. We impose a liquidity constraint on the firm. Specifically, whenever the net interim loss due to its first-period futures position exceeds a predetermined threshold level, the firm is forced to terminate its risk management program and, therefore, is prohibited from trading the futures contracts in the second period. We show that the liquidity-constrained firm optimally adopts a full-hedge via its second-period futures position to minimize the extent of the income risk and an under-hedge via its first-period futures position to limit the degree of the liquidity risk. © 2011 The Authors. Pacific Economic Review© 2011 Blackwell Publishing Asia Pty Ltd.
Persistent Identifierhttp://hdl.handle.net/10722/139808
ISSN
2015 Impact Factor: 0.388
2015 SCImago Journal Rankings: 0.346
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorTse, MKSen_HK
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2011-09-23T05:56:34Z-
dc.date.available2011-09-23T05:56:34Z-
dc.date.issued2011en_HK
dc.identifier.citationPacific Economic Review, 2011, v. 16 n. 2, p. 229-235en_HK
dc.identifier.issn1361-374Xen_HK
dc.identifier.urihttp://hdl.handle.net/10722/139808-
dc.description.abstractThis paper examines the hedging behaviour of a value-maximizing firm that exists for two periods. The firm faces uncertain income and is subject to tax asymmetries with no loss-offset provisions. The firm has access to unbiased futures contracts in each period for hedging purposes. We impose a liquidity constraint on the firm. Specifically, whenever the net interim loss due to its first-period futures position exceeds a predetermined threshold level, the firm is forced to terminate its risk management program and, therefore, is prohibited from trading the futures contracts in the second period. We show that the liquidity-constrained firm optimally adopts a full-hedge via its second-period futures position to minimize the extent of the income risk and an under-hedge via its first-period futures position to limit the degree of the liquidity risk. © 2011 The Authors. Pacific Economic Review© 2011 Blackwell Publishing Asia Pty Ltd.en_HK
dc.languageengen_US
dc.publisherBlackwell Publishing Asia. The Journal's web site is located at http://www.blackwellpublishing.com/journals/PERen_HK
dc.relation.ispartofPacific Economic Reviewen_HK
dc.rightsThe definitive version is available at www.blackwell-synergy.comen_US
dc.subjectCorporate strategy-
dc.subjectFinancial crisis-
dc.subjectFirm ownership-
dc.subjectFuture prospect-
dc.subjectRisk factor-
dc.titleLiquidity risk and corporate hedging with futuresen_HK
dc.typeArticleen_HK
dc.identifier.emailTse, MKS: ktse@hku.hken_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityTse, MKS=rp01101en_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/j.1468-0106.2011.00544.xen_HK
dc.identifier.scopuseid_2-s2.0-79955519372en_HK
dc.identifier.hkuros193898en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-79955519372&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume16en_HK
dc.identifier.issue2en_HK
dc.identifier.spage229en_HK
dc.identifier.epage235en_HK
dc.identifier.eissn1468-0106-
dc.identifier.isiWOS:000290170100006-
dc.publisher.placeAustraliaen_HK
dc.identifier.scopusauthoridTse, MKS=7103352647en_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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