Press Releases

Professor Viral Acharya Wins Prize for Paper on “Limits to Arbitrage and Hedging”

Viral Acharya, NYU Stern Professor of Finance, was awarded the Viz Risk Management Prize on Energy Markets, Securities, and Prices, for his paper, “Limits to Arbitrage and Hedging: Evidence from Commodity Markets,” with co-authors Lars Lochstoer from Columbia Business School and Tarun Ramadorai from Oxford University Said Business School. The prize was awarded on Friday, August 21 at the European Finance Association Meetings in Bergen, Norway.

Professor Acharya’s paper examines oil and gas data from 1980-2006 and finds that commodity producers hedge using futures contracts, to reduce their default risk from exposure to future cash flow variations. This hedging demand of producers generates a price pressure not just on futures markets, but also affects the spot market by altering producers’ inventories. The research reveals that limits to financial arbitrage by speculators – who take the opposite side to producers in futures markets –limits hedging by producers and affects prices in both asset and goods markets.