Empirical evidence suggests that unconditional variance of exchange rate return series is subject to occasional structural breaks that may induce spurious phenomenon of high persistence and long memory of volatility processes. In this paper, we investigate the effects of such breaks on estimated...

Regardless of the distributions of spot and futures returns, the hedge ratio determined by minimizing the portfolio's Aumann and Serrano (2008) index of riskiness is always smaller than the hedge ratio determined by minimizing the portfolio's variance. It is also demonstrated that the Foster and...

This paper analyzes the optimal production and hedging decisions of a competitive firm holding optimism and pessimism under price ambiguity. We show that the separation theorem remains intact as the firm's optimal output level depends neither on the output price distribution nor on the firm's...

This paper analyzes the production and hedging decisions of a competitive firm under price uncertainty and time-inconsistent preferences. We show that the firm would over-hedge and the output choice would be affected by the firm's preferences and the price distribution, thereby identifying a...

This paper studies the interplay between firm investment and cash flow hedging decisions when the decision-maker has time-inconsistent preferences. We show that cash flow hedging acts as a double-edged sword. In some cases, cash flow hedging enhances firm value because the firm can thus invest...

Motivated by psychological evidence that self-esteem plays an important role in individual decision-making, this paper studies how self-esteem concerns influence a manager's effort choice and hedging behavior and how a board designs the managerial compensation in response. We show that when the...

Dynamic correlation models demonstrate that the relationship between interest rates and housing prices is non-constant. Estimates reveal statistically significant time fluctuations in correlations between housing price indexes and Treasury bonds, the S&P 500 Index, and stock prices of...