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A Note on Dual Hedging

Author

Listed:
  • Donald Lien

    (Department of Economics, University of Texas-San Antonio, U.S.A.)

Abstract

Under current Internal Revenue Services guidelines, gains from futures contracts serving price (quantity) risk management purposes are treated as ordinary (capital) income. This paper finds that, although dual hedging opportunities are available, the asymmetric tax treatment prevents firms from trading "quantity" futures contracts.

Suggested Citation

  • 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.
    • Handle: RePEc:ijb:journl:v:3:y:2004:i:1:p:29-34
    as

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    File URL: https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.03-1/pdf/vol_3-1-4.pdf
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    File URL: https://ijbe.fcu.edu.tw/assets/ijbe/past_issue/No.03-1/abstract/04.html
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    References listed on IDEAS

    as
    1. Tomislav Vukina & Dong-feng Li & Duncan M. Holthausen, 1996. "Hedging with Crop Yield Futures: A Mean-Variance Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1015-1025.
    2. Donald Lien, 1999. "Uncertain tax rules and futures hedging," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(8), pages 429-436.
    3. 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.
    4. Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, vol. 75(6), pages 844-844.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Frestad, Dennis, 2010. "Corporate hedging under a resource rent tax regime," Energy Economics, Elsevier, vol. 32(2), pages 458-468, March.

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    More about this item

    Keywords

    dual hedging; ordinary income; capital income;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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