Bretscher, L, Schmid, L and Vedolin, A (2018) Interest Rate Risk Management in Uncertain Times. Review of Financial Studies, 31 (8). pp. 3019-3060. ISSN 0893-9454
Abstract
We revisit evidence of real effects of uncertainty shocks in the context of interest rate uncertainty. We document that adverse movements in interest rate uncertainty predict significant slowdowns in real activity, both at the aggregate and at the firm levels. To understand how firms cope with interest rate uncertainty, we develop a dynamic model of corporate investment, financing, and risk management and test it using a rich data set on corporate swap usage. We find that interest rate uncertainty depresses financially constrained firms’ investments in spite of hedging opportunities, because risk management by means of swaps is effectively risky.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Date Deposited: | 04 Jun 2019 10:37 |
Subjects: |
Financial markets Financial risk Risk |
Last Modified: | 05 Nov 2024 02:41 |
URI: | https://lbsresearch.london.edu/id/eprint/1141 |