Comment on “usefulness of treasury bill futures as hedging instruments”

✍ Scribed by James Kurt Dew

• Publisher: John Wiley and Sons
• Year: 1981
• Tongue: English
• Weight: 196 KB
• Volume: 1
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990010311

✦ Synopsis

his article discusses the "hedging usefulness'' of the 90-day Treasury-T bill futures contract traded on the IMM. The articlk improves upon the methodology used previously by Ederington. The improvement is that the authors (referred to hereafter as CDV) use an actual bill-the 6-month T-bill deliverable on the IMM 90-day futures contract-rather than the "90-day constant maturity" yield, a number arrived at "judgmentally" by an employee to the U.S. Treasury and released by the Federal Reserve. Thus, the Ederington result that showed the 90-day T-bill futures contract does not hedge an imaginary bill very well was in need of improvement, and the CDV have made an important contribution in their paper.

However, I find fault with CDV's conclusion on two grounds; First, I do not think they apply appropriately the economic purpose test found in the Commodity Exchange Act; second, their methodology is faulty.