Economics, Econometrics and Finance
4 years ago

Regret-averse firms make unique hedging decisions impacting production levels.

1 view
Economic Modelling
Production and hedging decisions under regret aversion
Xu Guo, Wing‐Keung Wong, Qunfang Xu, Xuehu Zhu

Paper Summary

Regret-averse firms make different production and hedging decisions compared to risk-averse firms. Regret aversion doesn't affect optimal production levels, but it does impact hedging positions. Regret-averse firms hold smaller hedging positions in futures markets. Banning firms from forward trading affects their production levels in both positive and negative ways.

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