Some Recent Developments in Futures Hedging

The use of futures contracts as a hedging instrument has been the focus of much research. At the theoretical level, an optimal hedge strategy is traditionally based on the expected–utility maximization paradigm. A simplification of this paradigm leads to the minimum–variance criterion. Although this paradigm is quite well accepted, alternative approaches have been sought. At the empirical level, research on futures hedging has benefited from the recent developments in the econometrics literature. Much research has been done on improving the estimation of the optimal hedge ratio. As more is known about the statistical properties of financial time series, more sophisticated estimation methods are proposed. In this survey we review some recent developments in futures hedging. We delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods.     

Optimal futures hedging for energy commodities: An application of the GAS model

This paper applies generalized autoregressive score-driven (GAS) models to futures hedging of crude oil and natural gas. For both commodities, the GAS framework captures the marginal distributions of spot and futures returns and corresponding dynamic copula correlations. We compare within-sample and out-of-sample hedging effectiveness of GAS models against constant ordinary least square (OLS) strategy and time-varying copula-based GARCH models in terms of volatility reduction and Value at Risk reduction. We show that the constant OLS hedge ratio is not inherently inferior to the time-varying alternatives. Nonetheless, GAS models tend to exhibit better hedging effectiveness than other strategies, particularly for natural gas.     

Evaluating the effects of cashing out employer-paid parking: Eight case studies

California law requires many employers to offer commuters the option to choose cash in lieu of any parking subsidy offered. This report presents case studies of eight firms that have complied with California's cash-out requirement. For the 1,694 employees of the eight firms, the number of solo drivers to work fell by 17 percent after cashing out. The number of carpoolers increased by 64 percent, the number of transit riders increased by 50 percent, and the number who walk or bike to work increased by 39 percent. Vehicle-miles traveled for commuting to the eight firms fell by 12 percent. Carbon dioxide emissions from commuting fell by 367 kilograms per employee per year. The eight firms' spending for commuting subsidies rose by $2 per employee per month because payments in lieu of parking increased slightly more than spending for parking declined. Federal and state income tax revenues increased by $65 per employee per year because many commuters voluntarily traded tax-exempt parking subsidies for taxable cash. Employers praised the cash option for its simplicity and fairness, and said that it helped to recruit and retain employees. The benefit/cost ratio of the eight cash-out programs was at least 4/1. In summary, these eight case studies show that cashing out employer-paid parking can benefit commuters, employers, taxpayers, and the environment. All these benefits derive from subsidizing people, not parking.     

Life in a Hutterite Colony: An Outsider's Experience and Reflections on a Forgotten People in Our Midst

In this study of the Hutterites, an Anabaptist Protestant sect tracing its roots to 1528, an attempt is made to discover the qualities that have enabled their colonies to survive and thrive in North America. It is found that the Hutterite beliefs of community of goods and self-surrender to the will of God are central factors which explain their long-term survival and the high degree of social cohesion they have achieved. The incentive to work for the common good, which has enabled them to remain economically viable as a relatively small community, are also directly attributable to religious belief. The author, who lived in a Hutterite colony as a participant-observer, found these additional significant elements contributing to Hutterite colony stability and growth: religious ritual, the structure of the family, a well defined division of labor, and a well-developed strategy for founding a new colony when the existing colony reaches a critical mass of 120-130 people. The study concludes with a discussion of what mainstream American society might learn from the Hutterites, including both critical and appreciative assessments of the life of this communal people whose members live quietly and effectively in our midst.     

Antitrust Enforcement and Nonenforcement as a Barrier to Imports – with Illustrations from the Japanese Film Dispute

The role of antitrust in opening foreign markets to imports is a strong yet often unpredictable undercurrent in international trade disputes. The U.S. government may seek to protect its exporters who are denied access to a foreign market either by enforcing U.S. antitrust laws or by using trade law remedies against the importing country for not enforcing its antitrust laws. Both actions raise issues of extraterritorial jurisdiction and comity.The primary goals of antitrust law and trade law are sometimes complementary but often diverge. Antitrust is primarily intended to benefit consumer welfare, while the purpose of trade law is to gain access to foreign markets for the benefit of domestic enterprises and their workforces. Consequently foreign market access pursued under antitrust law can raise novel issues when there is no apparent injury to domestic consumer welfare suffers from too little competition, whereas trade law pursue market access strictly as principles of fairness that have no necessary relationship with consumer welfare anywhere.This paper examines two aspects of antitrust law – (1) non-enforcement by the importing country, and (2) enforcement of U.S. law to compel access to the foreign market – and discusses the current dispute between Eastman Kodak Co. and Fujji Photo Film Co. as an illustration of the issues introduced above.