This paper studies the impact of the reference point on a hedger＇s decision based upon prospect theory and experimental evidence on how prior outcomes affect risky choice. The authors show that in the futures market,...This paper studies the impact of the reference point on a hedger＇s decision based upon prospect theory and experimental evidence on how prior outcomes affect risky choice. The authors show that in the futures market, a hedger who does not adjust his reference point timely would increase his positions continually as his accumulated losses increase, and finally become a speculator. Numerical simulation results under the normal distribution also lend support to the results. The model can help explain why the hedging behavior of firms turns into speculative activities and can offer some new insights into hedging behavior.展开更多
基金This research is supported by the National Natural Science Foundation under Grant No.70221001
文摘This paper studies the impact of the reference point on a hedger＇s decision based upon prospect theory and experimental evidence on how prior outcomes affect risky choice. The authors show that in the futures market, a hedger who does not adjust his reference point timely would increase his positions continually as his accumulated losses increase, and finally become a speculator. Numerical simulation results under the normal distribution also lend support to the results. The model can help explain why the hedging behavior of firms turns into speculative activities and can offer some new insights into hedging behavior.
