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The motivation for hedging revisited
Author(s) -
Pennings Joost M. E.,
Leuthold Raymond M.
Publication year - 2000
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/1096-9934(200010)20:9<865::aid-fut4>3.0.co;2-5
Subject(s) - futures contract , hedge , microeconomics , economics , conceptual model , power (physics) , financial economics , industrial organization , business , computer science , ecology , database , biology , physics , quantum mechanics
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. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:865–885, 2000.