In perfect financial markets, corporate hedging policy has no value.

Question

Quizplus · Accepted Answer

In perfect financial markets, all information is available to all market participants and there are no transaction costs or taxes. In such a market, the corporate hedging policy has no value as the market participants can perfectly hedge their exposure at no cost. However, in real-world imperfect markets with frictions, corporate hedging policy can have value in reducing risk and increasing firm value.

In Perfect Financial Markets, Corporate Hedging Policy Has No Value