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Optimal Hedging Under Forward-Looking Behaviour
Economic Record
  • Sergio H Lence, Iowa State University
  • Dermot J. Hayes, Iowa State University
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Publication Version
Submitted Manuscript
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The study focuses on the production and hedging behavior of forward-looking risk-averse competitive firms. It is shown that there is separation between production and hedging. Optimal production for a forward-looking firm is identical to that of an otherwise equivalent myopic firm. However, the optimal forward-looking hedge differs from the optimal myopic hedge. If forward prices are unbiased, full hedging is suboptimal when the firm is forward-looking and output and material input prices are contemporaneously related. Furthermore, under certain conditions, the optimal forward-looking hedge under unbiased forward prices is strictly smaller than the full hedge.


This working paper was published as Lence, Sergio H. and Dermot J. Hayes, "Optimal Hedging Under Forward-Looking Behaviour," Economic Record 71 (1995): 329–342, doi:10.1111/j.1475-4932.1995.tb02678.x.

Citation Information
Sergio H Lence and Dermot J. Hayes. "Optimal Hedging Under Forward-Looking Behaviour" Economic Record Vol. 71 Iss. 4 (1995) p. 329 - 342
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