Managers CAN outguess the market. If and when markets are in equilibrium with respect to parity conditions, the expected net present value of hedging should be POSITIVE.

Question

Quizplus · Accepted Answer

When markets are in equilibrium with respect to parity conditions, the expected net present value of hedging is typically zero, not positive, because parity conditions imply that any potential gains from hedging or outguessing the market are already accounted for in current prices.

Managers CAN Outguess the Market