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Article: Hedging, liquidity, and the competitive firm under price uncertainty

TitleHedging, liquidity, and the competitive firm under price uncertainty
Authors
Issue Date2004
PublisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/
Citation
Journal Of Futures Markets, 2004, v. 24 n. 7, p. 697-706 How to Cite?
AbstractIn this paper, the behavior of the competitive firm under price uncertainty when the firm has access to an intertemporally unbiased futures market is examined. Futures contracts are marked-to-market and thus require interim cash settlement of gains and losses. The firm is subject to a liquidity constraint in that it is forced to prematurely close its futures positionon which the interim loss incurred exceeds a threshold level. It is shown that the liquidity constrained firm optimally opts for an under-hedge should it be prudent. Furthermore, the prudent firm cuts down its optimal level of output in response to the presence of the liquidity constraint. As such, the liquidity risk created by the interim funding requirement of a futures hedge adversely affects the hedging and production decisions of the competitive firm under price uncertainty. © 2004 Wiley Periodicals, Inc.
Persistent Identifierhttp://hdl.handle.net/10722/85662
ISSN
2015 Impact Factor: 0.698
2015 SCImago Journal Rankings: 0.520
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2010-09-06T09:07:44Z-
dc.date.available2010-09-06T09:07:44Z-
dc.date.issued2004en_HK
dc.identifier.citationJournal Of Futures Markets, 2004, v. 24 n. 7, p. 697-706en_HK
dc.identifier.issn0270-7314en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85662-
dc.description.abstractIn this paper, the behavior of the competitive firm under price uncertainty when the firm has access to an intertemporally unbiased futures market is examined. Futures contracts are marked-to-market and thus require interim cash settlement of gains and losses. The firm is subject to a liquidity constraint in that it is forced to prematurely close its futures positionon which the interim loss incurred exceeds a threshold level. It is shown that the liquidity constrained firm optimally opts for an under-hedge should it be prudent. Furthermore, the prudent firm cuts down its optimal level of output in response to the presence of the liquidity constraint. As such, the liquidity risk created by the interim funding requirement of a futures hedge adversely affects the hedging and production decisions of the competitive firm under price uncertainty. © 2004 Wiley Periodicals, Inc.en_HK
dc.languageengen_HK
dc.publisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/en_HK
dc.relation.ispartofJournal of Futures Marketsen_HK
dc.rightsThe Journal of Futures Markets. Copyright © John Wiley & Sons, Inc.en_HK
dc.titleHedging, liquidity, and the competitive firm under price uncertaintyen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0270-7314&volume=24&spage=697&epage=706&date=2004&atitle=Hedging,+Liquidity,+and+the+Competitive+Firm+under+Price+Uncertaintyen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1002/fut.10133en_HK
dc.identifier.scopuseid_2-s2.0-2942625481en_HK
dc.identifier.hkuros102143en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-2942625481&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume24en_HK
dc.identifier.issue7en_HK
dc.identifier.spage697en_HK
dc.identifier.epage706en_HK
dc.identifier.isiWOS:000221711000005-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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