@article{08902d2043804d0c96f8649c33811787,
title = "Production and hedging decisions under regret aversion",
abstract = "In this paper, we investigate regret-averse firms' production and hedging behaviors. We first show that the separation theorem is still alive under regret aversion by proving that regret aversion is independent of the level of optimal production. On the other hand, we find that the full-hedging theorem does not always hold under regret aversion as the regret-averse firms take hedged positions different from those of risk-averse firms in some situations. With more regret aversion, regret-averse firms will hold smaller optimal hedging positions in an unbiased futures market. Furthermore, contrary to the conventional expectations, we show that banning firms from forward trading affects their production level in both directions.",
keywords = "Competitive firms, Hedging, Production, Regret aversion, Risk aversion",
author = "Xu Guo and Wong, {Wing Keung} and Qunfang Xu and Xuehu Zhu",
note = "Funding Information: The authors thank the Editor, Professor Paresh Narayan, the Associate Editor, Professor Niklas Wagner, and two anonymous referees for their constructive comments and suggestions, which help us clarify more precisely the results and lead to the substantial improvement of an early manuscript. The authors are grateful to Professors Donald Lien, Agnar Sandmo, Robert I. Webb, and Kit Pong Wong for their valuable comments, which have significantly improved this manuscript. The second author would like to thank Professors Robert B. Miller and Howard E. Thompson for their continual guidance and encouragement. This research is partially supported by the Fundamental Research Funds for the Central Universities (NR2015001), Hong Kong Baptist University (FRG2/14-15/106, FRG2/14-15/040), Research Grants Council of Hong Kong (Project Number 12502814), Natural Science Foundation of Zhejiang Province (LY15A010006) Grants, Research Project of the National Statistics (2013LY119), and Ningbo University Talent Project (ZX2014000781). Publisher copyright: Copyright {\textcopyright} 2015 Published by Elsevier Ltd.",
year = "2015",
month = dec,
doi = "10.1016/j.econmod.2015.08.007",
language = "English",
volume = "51",
pages = "153--158",
journal = "Economic Modelling",
issn = "0264-9993",
publisher = "Elsevier",
}