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The motivation for hedging revisited

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  • Joost M. E. Pennings
  • Raymond M. Leuthold

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. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:865–885, 2000.

Suggested Citation

  • Joost M. E. Pennings & Raymond M. Leuthold, 2000. "The motivation for hedging revisited," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(9), pages 865-885, October.
    • Handle: RePEc:wly:jfutmk:v:20:y:2000:i:9:p:865-885
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    Cited by:

    1. Gaurav Gairola & Kushankur Dey, 2023. "Price discovery and risk management in asset class: a bibliometric analysis and research agenda," Applied Economics Letters, Taylor & Francis Journals, vol. 30(17), pages 2320-2331, October.
    2. Luis Manuel Fernandes Rego & Jose António Filipe, 2012. "Interest Rate Risk Immunization - The Impact Of Credit Risk In The Quality Of Immunization Case Study: Immunization With Portuguese Bonds And German Bonds," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 2(4), pages 308-308.
    3. Jules Sadefo Kamdem & Zoulkiflou Moumouni, 2020. "Comparison of Some Static Hedging Models of Agricultural Commodities Price Uncertainty," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(3), pages 631-655, September.
    4. Mofokeng, Maine & Vink, Nick, 2013. "Factors Affecting the Hedging Decision of Maize Farmers in Gauteng Province," 2013 Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 161465, African Association of Agricultural Economists (AAAE).
    5. Zoulkiflou Moumouni & Jules Sadefo-Kamdem, 2019. "New models of commodity risk hedging according to the behavior of economic decision-makers or Rollover Strategies," Working Papers hal-02417459, HAL.
    6. Gurmeet Singh, 2017. "Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures," Jindal Journal of Business Research, , vol. 6(2), pages 108-131, December.

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