How do Firms Hedge in Financial Distress?
(2022) In Journal of Futures Markets 42(7). p.1324-1351- Abstract
- We examine how firms hedge in financial distress. Using hand-collected data from oil and gas producers, we find that these firms hedge oil prices during periods of financial distress. Derivative portfolios in these firms are characterized by short put options. These positions are part of a composite three-way collar strategy that combines buying put options and selling put and call options with differing strike prices. Because liquidity demand varies with the degree of financial distress, the three-way collar strategy preserves incentives for future growth.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/a974b32b-9a16-4f50-8a4b-6535c880ee55
- author
- Dudley, Evan ; Andrén, Niclas LU and Jankensgård, Håkan LU
- organization
- publishing date
- 2022-05-03
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Corporate hedging, risk management, financial distress, economic distress
- in
- Journal of Futures Markets
- volume
- 42
- issue
- 7
- pages
- 1324 - 1351
- publisher
- John Wiley & Sons Inc.
- external identifiers
-
- scopus:85129498225
- ISSN
- 1096-9934
- DOI
- 10.1002/fut.22336
- language
- English
- LU publication?
- yes
- id
- a974b32b-9a16-4f50-8a4b-6535c880ee55
- date added to LUP
- 2022-04-20 12:59:24
- date last changed
- 2022-07-08 17:00:19
@article{a974b32b-9a16-4f50-8a4b-6535c880ee55, abstract = {{We examine how firms hedge in financial distress. Using hand-collected data from oil and gas producers, we find that these firms hedge oil prices during periods of financial distress. Derivative portfolios in these firms are characterized by short put options. These positions are part of a composite three-way collar strategy that combines buying put options and selling put and call options with differing strike prices. Because liquidity demand varies with the degree of financial distress, the three-way collar strategy preserves incentives for future growth.}}, author = {{Dudley, Evan and Andrén, Niclas and Jankensgård, Håkan}}, issn = {{1096-9934}}, keywords = {{Corporate hedging; risk management; financial distress; economic distress}}, language = {{eng}}, month = {{05}}, number = {{7}}, pages = {{1324--1351}}, publisher = {{John Wiley & Sons Inc.}}, series = {{Journal of Futures Markets}}, title = {{How do Firms Hedge in Financial Distress?}}, url = {{http://dx.doi.org/10.1002/fut.22336}}, doi = {{10.1002/fut.22336}}, volume = {{42}}, year = {{2022}}, }