Abstract

http://ssrn.com/abstract=1711254
 
 

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Input Hedging, Output Hedging and Market Power


David De Angelis


Rice University - Jesse H. Jones Graduate School of Business

S. Abraham Ravid


Yeshiva University - Syms School of Business

May 2013

Johnson School Research Paper Series No. 40-2010

Abstract:     
We argue that input and output hedging are very different. Furthermore, if firms are able to influence output prices, output hedging can create incentives for profit reducing over-production, which are not present in competitive markets. Thus we expect firms to hedge outputs less often than inputs and firms with market power to hedge outputs less often than competitive firms. We test these predictions on a sample of S&P500 firms from 2001 to 2005. The findings are consistent with our expectations. Firms with output market power tend not to hedge commodity risk. A placebo test shows that the same empirical regularities do not apply to currency hedging where there are competitive international markets. Finally, our empirical framework, which differentiates between input and output hedging, can also help reconcile conflicting results in prior studies.

Number of Pages in PDF File: 45

Keywords: Corporate Hedging, Market Power

JEL Classification: G3, G30, G32, L13

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Date posted: November 19, 2010 ; Last revised: June 3, 2013

Suggested Citation

De Angelis, David and Ravid, S. Abraham, Input Hedging, Output Hedging and Market Power (May 2013). Johnson School Research Paper Series No. 40-2010. Available at SSRN: http://ssrn.com/abstract=1711254

Contact Information

David De Angelis (Contact Author)
Rice University - Jesse H. Jones Graduate School of Business ( email )
6100 Main Street, MS 531
Houston, TX 77005
United States
(713) 348-6030 (Phone)
HOME PAGE: http://www.de-angelis.com

S. Abraham Ravid
Yeshiva University - Syms School of Business ( email )
United States
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