The welfare costs of Arkansas Best: the inefficiency of asymmetric taxation of hedging gains and losses

Article Abstract:

The Supreme Court ruled in the 1990 Arkansas Best Corp. case that corporate hedge transactions should be taxed asymmetrically. However, the IRS reverted to symmetric taxation of such transactions in 1993. An analysis of this issue shows that asymmetric taxation results in a deadweight loss associated with the loss of risk bearing efficiencies. The deadweight loss arises from the use of futures, options and forward contracts, which result in higher agency and transaction costs, in minimizing risk.

Trucking, General Freight Trucking, Trucking & Courier Services, Ex. Air, Taxation, Cases, Arkansas Best Corp.

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A risk-return measure of hedging effectiveness: a simplification

Article Abstract:

The Howard and D'Antonio (HD) portfolio-based modeling approach to hedging cannot accurately define the rate of return in futures when computing the optimal hedge ratio. The HD approach, which emphasizes the use of rate of return in hedging performance, also cannot identify the optimal hedge ratio using historical data. The HD approach is useful as a risk management mechanism since it is based on the risk-return separation.

Management, Futures market, Futures markets

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Value at risk and conditional extreme value theory via Markov regime switching models

Article Abstract:

A conditional extreme value theory-based (EVT) model for forecasting extreme risks in stock markets is proposed. This model, combined with the Markov switching ARCH (SWATCH) model, outperforms the GARCH and SWARCH models in capturing non-normality and forecasting value-at-risk.

Hong Kong, Venture Analysis, Usage, Stock price forecasting, Extreme value theory, Stock markets, Stock market, Report

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