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Article: Exchange Rate Risk and the Impact of Regret on Trade

TitleExchange Rate Risk and the Impact of Regret on Trade
Authors
Issue Date2015
PublisherSpringer. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0923-7992
Citation
Open Economies Review, 2015, v. 26 n. 1, p. 109-119 How to Cite?
AbstractThis paper examines the behavior of the regret-averse multinational firm under exchange rate uncertainty. Regret-averse preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the conventional results that the multinational firm optimally produces less, sells more domestically, and export less abroad under uncertainty than under certainty holds if the multinational firm is not too regret averse. Using a simple binary model wherein the random spot exchange rate can take on either a low value or a high value with positive probability, we show that the conventional results may not hold, particularly when the multinational firm is sufficiently regret averse and the low spot exchange rate is very likely to prevail.
Persistent Identifierhttp://hdl.handle.net/10722/207769
ISSN
2015 Impact Factor: 0.772
2015 SCImago Journal Rankings: 0.531

 

DC FieldValueLanguage
dc.contributor.authorBroll, Uen_US
dc.contributor.authorWelzel, Pen_US
dc.contributor.authorWong, KPen_US
dc.date.accessioned2015-01-19T10:24:45Z-
dc.date.available2015-01-19T10:24:45Z-
dc.date.issued2015en_US
dc.identifier.citationOpen Economies Review, 2015, v. 26 n. 1, p. 109-119en_US
dc.identifier.issn0923-7992-
dc.identifier.urihttp://hdl.handle.net/10722/207769-
dc.description.abstractThis paper examines the behavior of the regret-averse multinational firm under exchange rate uncertainty. Regret-averse preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the conventional results that the multinational firm optimally produces less, sells more domestically, and export less abroad under uncertainty than under certainty holds if the multinational firm is not too regret averse. Using a simple binary model wherein the random spot exchange rate can take on either a low value or a high value with positive probability, we show that the conventional results may not hold, particularly when the multinational firm is sufficiently regret averse and the low spot exchange rate is very likely to prevail.en_US
dc.languageengen_US
dc.publisherSpringer. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0923-7992en_US
dc.relation.ispartofOpen Economies Reviewen_US
dc.rightsThe original publication is available at www.springerlink.comen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleExchange Rate Risk and the Impact of Regret on Tradeen_US
dc.typeArticleen_US
dc.identifier.emailWong, KP: kpwong@econ.hku.hken_US
dc.identifier.authorityWong, KP=rp01112en_US
dc.description.naturepostprint-
dc.identifier.doi10.1007/s11079-014-9321-0en_US
dc.identifier.hkuros242206en_US
dc.identifier.volume26en_US
dc.identifier.spage109en_US
dc.identifier.epage119en_US

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