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Optimal Futures Positions for Large Banking Firms

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Author Info
 Morgan, George Emir
Shome, Dilip K
Smith, Stephen D
Abstract

Earlier work on hedging is extended to incorporate uncertainty about deposit supp ly and loan demand as well as random returns on loans and CDs. The op timal forward position is the sum of three ratios which should be est imated simultaneously. The bank-specific data show that studies of ba nks have overstated (1) the optimum volume of short futures for banks , (2) the homogeneity of optimal hedge ratios across the banking syst em, and (3) the effect of deregulation on interest-rate risk. The evi dence is inconsistent with the hypothesis that deregulation increased the interest-rate risk borne by banks. Copyright 1988 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 43 (1988)
Issue (Month): 1 (March)
Pages: 175-95
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Handle: RePEc:bla:jfinan:v:43:y:1988:i:1:p:175-95

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