Dynamic risk management

Journal Article (Journal Article)

Both financing and risk management involve promises to pay that need to be collateralized, resulting in a financing versus risk management trade-off. We study this trade-off in a dynamic model of commodity price risk management and show that risk management is limited and that more financially constrained firms hedge less or not at all. We show that these predictions are consistent with the evidence using panel data for fuel price risk management by airlines. More constrained airlines hedge less both in the cross section and within airlines over time. Risk management drops substantially as airlines approach distress and recovers only slowly after airlines enter distress. © 2013 Elsevier B.V.

Full Text

Duke Authors

Cited Authors

  • Rampini, AA; Sufi, A; Viswanathan, S

Published Date

  • February 1, 2014

Published In

Volume / Issue

  • 111 / 2

Start / End Page

  • 271 - 296

International Standard Serial Number (ISSN)

  • 0304-405X

Digital Object Identifier (DOI)

  • 10.1016/j.jfineco.2013.10.003

Citation Source

  • Scopus