| Abstract: | Our research is motivated by the Corn Products vs Arkansas Best Supreme court decisions that brought on the controversy of the tax treatment of gains and losses from futures hedging. The usefulness of a futures contract as risk management tool depends on the tax code. In this paper we address implications of capital treatment of futures positions (disallowing offset for tax purposes) when tax‐loss carryover is allowed. Our analysis utilizes a two‐period model to capture the inter‐temporal effects. We investigate the optimal hedge ratios under these scenarios analytically where possible, and numerically where necessary. Copyright © 2002 John Wiley & Sons, Ltd. |
