The impact of inflation risk on forward trading and production

Detalhes bibliográficos
Autor(a) principal: Broll, Udo
Data de Publicação: 2015
Outros Autores: Kit Pong, Wong
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10400.5/15732
Resumo: This 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.
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spelling The impact of inflation risk on forward trading and productionForward hedgingExpectation dependenceInflation riskProductionThis 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.Springer VerlagRepositório da Universidade de LisboaBroll, UdoKit Pong, Wong2018-06-27T12:28:13Z2015-122015-12-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.5/15732engBroll, Udo e Kit Pong Wong (2015). "The impact of inflation risk on forward trading and production". Portuguese Economic Journal, 14(1-3):65-731617-982X (print)10.1007/s10258-015-0109-ymetadata only accessinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-05-28T01:30:54Zoai:www.repository.utl.pt:10400.5/15732Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T17:01:19.761546Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv The impact of inflation risk on forward trading and production
title The impact of inflation risk on forward trading and production
spellingShingle The impact of inflation risk on forward trading and production
Broll, Udo
Forward hedging
Expectation dependence
Inflation risk
Production
title_short The impact of inflation risk on forward trading and production
title_full The impact of inflation risk on forward trading and production
title_fullStr The impact of inflation risk on forward trading and production
title_full_unstemmed The impact of inflation risk on forward trading and production
title_sort The impact of inflation risk on forward trading and production
author Broll, Udo
author_facet Broll, Udo
Kit Pong, Wong
author_role author
author2 Kit Pong, Wong
author2_role author
dc.contributor.none.fl_str_mv Repositório da Universidade de Lisboa
dc.contributor.author.fl_str_mv Broll, Udo
Kit Pong, Wong
dc.subject.por.fl_str_mv Forward hedging
Expectation dependence
Inflation risk
Production
topic Forward hedging
Expectation dependence
Inflation risk
Production
description This 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.
publishDate 2015
dc.date.none.fl_str_mv 2015-12
2015-12-01T00:00:00Z
2018-06-27T12:28:13Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.5/15732
url http://hdl.handle.net/10400.5/15732
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv Broll, Udo e Kit Pong Wong (2015). "The impact of inflation risk on forward trading and production". Portuguese Economic Journal, 14(1-3):65-73
1617-982X (print)
10.1007/s10258-015-0109-y
dc.rights.driver.fl_str_mv metadata only access
info:eu-repo/semantics/openAccess
rights_invalid_str_mv metadata only access
eu_rights_str_mv openAccess
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dc.publisher.none.fl_str_mv Springer Verlag
publisher.none.fl_str_mv Springer Verlag
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron:RCAAP
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
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reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
repository.name.fl_str_mv Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
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