Hedging Revisited: Resolving Contractual Conflicts

Office for Futures and Options Research Working Paper No. 00-01

21 Pages Posted: 13 Jul 2000

See all articles by Joost M. E. Pennings

Joost M. E. Pennings

Maastricht University; Wageningen UR

Raymond M. Leuthold

University of Illinois @ Urbana-Champaign

Date Written: January 2000

Abstract

This paper 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, firms' contract preferences, level of power and conflicts in contractual relationships are driving usage of futures contracts. The model shows how using futures markets can provide a jointly preferred contracting arrangement, thereby enhancing relationships between firms. The robust nature of the conceptual model is empirically examined through a computer-guided study of various firms.

JEL Classification: L21, L22

Suggested Citation

Pennings, Joost M. E. and Leuthold, Raymond M., Hedging Revisited: Resolving Contractual Conflicts (January 2000). Office for Futures and Options Research Working Paper No. 00-01. Available at SSRN: https://ssrn.com/abstract=229799 or http://dx.doi.org/10.2139/ssrn.229799

Joost M. E. Pennings (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Wageningen UR ( email )

Hollandseweg 1
Wageningen, 6706KN
Netherlands

Raymond M. Leuthold

University of Illinois @ Urbana-Champaign ( email )

1301 W. Gregory Drive
326 Mumford Hall
Urbana, IL 61801
United States
217-333-1810 (Phone)
217-333-5538 (Fax)

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