3.0.CO;2-M">
[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v20y1999i8p429-436.html
   My bibliography  Save this article

Uncertain tax rules and futures hedging

Author

Listed:
  • Donald Lien

    (Department of Economics, University of Kansas, Lawrence, KS, USA)

Abstract
This paper considers the optimal futures hedging decision under uncertain tax treatment. If the Corn Products (CP) rule applies, gains or losses from futures trading can offset business gains or losses. However, under the Arkansas Best (AB) doctrine, offsetting is not allowed. We show that the risk neutral firm will not trade futures contracts if the probability the CP rule prevails is small. When the probability is sufficiently large, the firm will assume an underhedge. A risk averse firm is likely to trade, even if the AB rule prevails. As long as the CP ruling is not a sure thing, the firm will engage in underhedge. The effects of average business profits, the volatility of business profits, and risk aversion on the optimal futures position are provided. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Donald Lien, 1999. "Uncertain tax rules and futures hedging," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(8), pages 429-436.
    • Handle: RePEc:wly:mgtdec:v:20:y:1999:i:8:p:429-436
    DOI: 10.1002/1099-1468(199912)20:8<429::AID-MDE959>3.0.CO;2-M
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Milevsky, Moshe Arye & Prisman, Eliezer Z., 1999. "Hedging and pricing with tax law uncertainty: Managing under an Arkansas Best doctrine," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(1), pages 147-168.
    2. Purcell, Wayne D., 1992. "Research on Implications of IRS Policies to the Effectivemess of Cattle Futures Markets," Staff Papers 232408, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Donald Lien, 2004. "A Note on Dual Hedging," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 29-34, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sticca, Ralph Melles & Nakao, Silvio Hiroshi, 2019. "Hedge accounting choice as exchange loss avoidance under financial crisis: Evidence from Brazil," Emerging Markets Review, Elsevier, vol. 41(C).
    2. Yun, Won-Cheol & Purcell, Wayne D., 1993. "Research on Implications of IRS Policies to the Effectiveness of Cattle Futures Markets: Part II, Impact of Different Types of Traders," Staff Papers 232511, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics.
    3. Donald Lien & Michael Metz, 2001. "Corporate income tax and futures hedging," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 25(3), pages 308-315, September.
    4. repec:ags:vtaesp:232460 is not listed on IDEAS
    5. Donald Lien, 2004. "A Note on Dual Hedging," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 29-34, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:20:y:1999:i:8:p:429-436. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.