The motivation for hedging revisited

Joost M.E. Pennings*, RM Leuthold

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This article develops an alternative view on the motivation to hedge. A conceptual model shows how hedging facilitates contract relationships between firms and can solve conflicts between firms. In this model, the contract preferences, level of power, and conflicts in contractual relationships of firms are driving the usage of futures contracts. The model shows how using futures markets can provide a jointly preferred contracting arrangement, enhancing relationships between firms. The robust nature of the conceptual model is empirically examined through a computer-guided study of various firms.
Original languageEnglish
Pages (from-to)865-885
Number of pages21
JournalJournal of Futures Markets
Volume20
Issue number9
DOIs
Publication statusPublished - Oct 2000
Externally publishedYes

Keywords

  • FUTURES MARKETS
  • DEVELOPING-COUNTRY
  • SHAREHOLDER VALUE
  • CHANNEL
  • POWER
  • PRICES
  • UNCERTAINTY
  • DEPENDENCE
  • CONFLICT
  • FIRM

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