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Optimal Hedging Strategies and Interactions between Firms


  • This is part of the author’s PhD dissertation realized at the University of Toulouse. Part of this paper was written while I visited the FMG–LSE. I am largely indebted to Bruno Jullien and to Denis Gromb for their detailed comments on this work and for their encouragements. In addition, special thanks are due to Bruno Biais, François Boldron, Marie Bresson, Catherine Casamatta, Sylvain Champonnois, Arnold Chassagnon, Antoine Faure-Grimaud, Hela Hadj Ali, Urs Haegler, Armel Jacques, Freyan Panthaki, Pierre Picard, Guillaume Plantin, Sebatien Pouget, Antoine Renucci, Sylvia Rosetto, Benoît Roger, Anne Marie Tauzin, the editor, a co-editor, an anonymous referee as well as participants at the IDEI Finance workshop on Corporate Finance and Industrial Organization. I would also like to thank seminar participants at Université Paris Dauphine, LBS, LSE, Universit é Toulouse I, and participants at AFFI (Lyon, 2003), the EEA meeting (Bozen-Bolzano, 2000), the EARIE meeting (Lausanne, 2000), the EGRIE meeting (Rome, 2000), and the “Ecole de printemps” (Aix en Provence, 2000). Financial support from the European Commission (Training and Mobility of Researchers) is gratefully acknowledged. All remaining errors are mine.


This paper studies corporate risk management in a context of financial constraints and imperfect competition in the product market. The paper shows that interactions between firms affect their hedging strategies. As a general rule, firms’ hedging demands decrease with the correlation between their internal funds and investment opportunities. Moreover, when a firm’s hedging demand is high in the case where investments are strategic substitutes, its hedging demand is low in the case where investments are strategic complements and vice versa.