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Rethinking risk management (1996)
| Venue: | Journal of Applied Corporate Finance |
| Citations: | 159 - 1 self |
BibTeX
@ARTICLE{Stulz96rethinkingrisk,
author = {René M. Stulz},
title = {Rethinking risk management},
journal = {Journal of Applied Corporate Finance},
year = {1996},
pages = {8--24}
}
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Abstract
Empirical evidence shows that the practice of risk management is limited and does not correspond to the prescriptions of the academic literature. In particular, the practice focuses on hedging transactions exposures and a firm’s hedge ratios depend on the views of the managers of that firm. In this paper, we provide a new approach to risk management that is consistent both with the main results of the academic literature but takes into account the fact that firms can have a comparative advantage in bearing some kinds of risks. We examine the implications of this new approach for the management of risk management and for risk measures such as Var. 1 1. Introduction. This article explores a paradox in the current practice of risk management. Academic research argues strongly that risk management creates value. Most of the academic research focuses on risk management that decreases variability of firm value or cash flows. Despite this academic literature, however, the practice of risk management is rather limited and it does not seem to correspond to the recommendations of academics. Does this
