On Dynamic Risk Management - Investigating the Theory of Collateral Constraints
(2017) NEKP03 20171Department of Economics
- Abstract (Swedish)
- This paper investigates the theory of collateral constraints developed by Rampini, Sufi, and Viswanathan in their paper Dynamic Risk Management published in 2014. In this theoretical framework, firms are faced with a trade-off between using scarce cash holdings to finance investments and engaging in risk management. Using an updated dataset covering a tumultuous time-period in which oil prices fell dramatically, we employ a wide range of statistical models, including difference-in-differences estimations, to test the validity of this theory in the North American oil and gas industry. Our results are not completely unanimous, but after having analyzed them in detail we can conclude that more financially unconstrained firms tend to hedge... (More)
- This paper investigates the theory of collateral constraints developed by Rampini, Sufi, and Viswanathan in their paper Dynamic Risk Management published in 2014. In this theoretical framework, firms are faced with a trade-off between using scarce cash holdings to finance investments and engaging in risk management. Using an updated dataset covering a tumultuous time-period in which oil prices fell dramatically, we employ a wide range of statistical models, including difference-in-differences estimations, to test the validity of this theory in the North American oil and gas industry. Our results are not completely unanimous, but after having analyzed them in detail we can conclude that more financially unconstrained firms tend to hedge more than constrained firms. In addition, as oil prices fell dramatically in the last months of 2014 resulting in widespread financial distress, constrained firms generally responded by decreasing their hedging even more. Ultimately, based on the results from the statistical models and the subsequent analysis, we are in a position to support, though not completely, the theory of collateral constraints. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/8914471
- author
- Bladlund, Linus LU and Andersson, Erik LU
- supervisor
- organization
- course
- NEKP03 20171
- year
- 2017
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Collateral, Financial Constraints, Oil and Gas Industry, Risk Management
- language
- English
- id
- 8914471
- date added to LUP
- 2017-06-13 14:46:09
- date last changed
- 2017-06-13 14:46:09
@misc{8914471, abstract = {{This paper investigates the theory of collateral constraints developed by Rampini, Sufi, and Viswanathan in their paper Dynamic Risk Management published in 2014. In this theoretical framework, firms are faced with a trade-off between using scarce cash holdings to finance investments and engaging in risk management. Using an updated dataset covering a tumultuous time-period in which oil prices fell dramatically, we employ a wide range of statistical models, including difference-in-differences estimations, to test the validity of this theory in the North American oil and gas industry. Our results are not completely unanimous, but after having analyzed them in detail we can conclude that more financially unconstrained firms tend to hedge more than constrained firms. In addition, as oil prices fell dramatically in the last months of 2014 resulting in widespread financial distress, constrained firms generally responded by decreasing their hedging even more. Ultimately, based on the results from the statistical models and the subsequent analysis, we are in a position to support, though not completely, the theory of collateral constraints.}}, author = {{Bladlund, Linus and Andersson, Erik}}, language = {{eng}}, note = {{Student Paper}}, title = {{On Dynamic Risk Management - Investigating the Theory of Collateral Constraints}}, year = {{2017}}, }