a Department of Economics, University of Bonn, D-53113, Bonn, Germany;b Department of Finance, University of Dortmund, D-44221, Dortmund, Germany;c Department of Economics, Tel-Aviv University, Ramat-Aviv, Tel Aviv, 69978, Israel
Abstract:
We analyse production and hedging in a multiperiod framework for a risk-averse exporting firm facing a random exchange rate. We extend the separation theorem to this multiperiod model. Our study shows that unbiased currency forward markets in all periods do not imply standard full hedging. Under some conditions, the firm tends to overhedge compared to the one-period hedging models.