International Journal of Business and Economics Volume 3, No. 1 April​, 2004

A Note on Dual Hedging

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.

Keywords：dual hedging, ordinary income, capital income.

JEL Classifications： G11.

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