File Download
  Links for fulltext
     (May Require Subscription)
Supplementary

Article: The Impact of Inflation Risk on Forward Trading and Production

TitleThe Impact of Inflation Risk on Forward Trading and Production
Authors
Issue Date2015
PublisherSpringer. The Journal's web site is located at http://www.springer.com/economics/journal/10258
Citation
Portuguese Economic Journal, 2015, v. 14, p. 65-73 How to Cite?
AbstractThis paper examines the behavior of a competitive firm that faces joint price and inflation risk. Given that the price risk is negatively correlated with the inflation risk in the sense of expectation dependence, we show that the firm optimally opts for an over-hedge (under-hedge) if the firm's coefficient of relative risk aversion is everywhere no greater (no smaller) than unity. We show further that banning the firm from forward trading may induce the firm to produce more or less, depending on whether the price risk premium is positive or negative, respectively. While the price risk premium is unambiguously negative in the absence of the inflation risk, it is not the case when the inflation risk prevails. In contrast to the conventional wisdom, forward hedging needs not always promote production should firms take inflation seriously.
Persistent Identifierhttp://hdl.handle.net/10722/221918

 

DC FieldValueLanguage
dc.contributor.authorBroll, U-
dc.contributor.authorWong, KP-
dc.date.accessioned2015-12-21T05:47:37Z-
dc.date.available2015-12-21T05:47:37Z-
dc.date.issued2015-
dc.identifier.citationPortuguese Economic Journal, 2015, v. 14, p. 65-73-
dc.identifier.urihttp://hdl.handle.net/10722/221918-
dc.description.abstractThis paper examines the behavior of a competitive firm that faces joint price and inflation risk. Given that the price risk is negatively correlated with the inflation risk in the sense of expectation dependence, we show that the firm optimally opts for an over-hedge (under-hedge) if the firm's coefficient of relative risk aversion is everywhere no greater (no smaller) than unity. We show further that banning the firm from forward trading may induce the firm to produce more or less, depending on whether the price risk premium is positive or negative, respectively. While the price risk premium is unambiguously negative in the absence of the inflation risk, it is not the case when the inflation risk prevails. In contrast to the conventional wisdom, forward hedging needs not always promote production should firms take inflation seriously.-
dc.languageeng-
dc.publisherSpringer. The Journal's web site is located at http://www.springer.com/economics/journal/10258-
dc.relation.ispartofPortuguese Economic Journal-
dc.rightsThe final publication is available at Springer via http://dx.doi.org/10.1007/s10258-015-0109-y-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleThe Impact of Inflation Risk on Forward Trading and Production-
dc.typeArticle-
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hk-
dc.identifier.authorityWong, KP=rp01112-
dc.description.naturepostprint-
dc.identifier.doi10.1007/s10258-015-0109-y-
dc.identifier.hkuros256395-
dc.identifier.volume14-
dc.identifier.spage65-
dc.identifier.epage73-

Export via OAI-PMH Interface in XML Formats


OR


Export to Other Non-XML Formats