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Article: Export and Hedging Decisions under Correlated Revenue and Exchange Rate Risk

TitleExport and Hedging Decisions under Correlated Revenue and Exchange Rate Risk
Authors
Issue Date2015
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOER
Citation
Bulletin of Economic Research, 2015, v. 67, p. 371-381 How to Cite?
AbstractThis paper examines the behavior of a competitive exporting firm under joint revenue and exchange rate risk. The firm can trade unbiased currency futures contracts for hedging purposes. We show that neither the separation theorem nor the full-hedging theorem holds when the revenue shock prevails. If the correlation between the revenue shock and the random spot exchange rate is non-positive, the firm optimally produces less than the benchmark level when the revenue shock is absent. If, in addition, the firm is prudent, the optimal futures position is an under-hedge. Finally, we derive sufficient conditions under which the firm's optimal output level is higher in the presence than in the absence of the revenue shock. Operational hedging and financial hedging as such interact in a complicated way to better cope with the multiple sources of uncertainty faced by the firm.
Persistent Identifierhttp://hdl.handle.net/10722/220230
ISSN
2015 Impact Factor: 0.261
2015 SCImago Journal Rankings: 0.280

 

DC FieldValueLanguage
dc.contributor.authorWong, KP-
dc.date.accessioned2015-10-16T06:33:11Z-
dc.date.available2015-10-16T06:33:11Z-
dc.date.issued2015-
dc.identifier.citationBulletin of Economic Research, 2015, v. 67, p. 371-381-
dc.identifier.issn0307-3378-
dc.identifier.urihttp://hdl.handle.net/10722/220230-
dc.description.abstractThis paper examines the behavior of a competitive exporting firm under joint revenue and exchange rate risk. The firm can trade unbiased currency futures contracts for hedging purposes. We show that neither the separation theorem nor the full-hedging theorem holds when the revenue shock prevails. If the correlation between the revenue shock and the random spot exchange rate is non-positive, the firm optimally produces less than the benchmark level when the revenue shock is absent. If, in addition, the firm is prudent, the optimal futures position is an under-hedge. Finally, we derive sufficient conditions under which the firm's optimal output level is higher in the presence than in the absence of the revenue shock. Operational hedging and financial hedging as such interact in a complicated way to better cope with the multiple sources of uncertainty faced by the firm.-
dc.languageeng-
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/BOER-
dc.relation.ispartofBulletin of Economic Research-
dc.rightsThe definitive version is available at www.blackwell-synergy.com-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.titleExport and Hedging Decisions under Correlated Revenue and Exchange Rate Risk-
dc.typeArticle-
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hk-
dc.identifier.authorityWong, KP=rp01112-
dc.description.naturepostprint-
dc.identifier.doi10.1111/boer.12016-
dc.identifier.hkuros255816-
dc.identifier.volume67-
dc.identifier.spage371-
dc.identifier.epage381-
dc.publisher.placeUnited Kingdom-

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