Currently, theories of financial futures hedging are based on either a portfolio‐choice approach or a duration approach. This article presents an alternative: a firm‐theoretic model of bank behavior with financial futures. Assuming the bank is uncertain about cash CD interest rates and the quantity of CDs it needs in the future, expressions for the optimal futures hedge are derived under constant absolute risk aversion and constant relative risk aversion. The performance of these two strategies is estimated from 1981–1983 using either the recently developed CD futures contract or the T‐Bill futures contract. These results are also compared with the performance of a portfolio‐choice strategy and a routine hedging strategy. The analysis indicates that the CD futures market can serve a hedging purpose that is not served by the previously established T‐Bill futures market.

Currently, theories of financial futures hedging are based on either a portfolio-choice approach or a duration approach. This article presents an alternative: a firm-theoretic model of bank behavior with financial futures. Assuming the bank is uncertain about cash CD interest rates and the quantity of CDs it needs in the future, expressions for the optimal futures hedge are derived under constant absolute risk aversion and constant relative risk aversion. The performance of these two strategies is estimated from 1981–1983 using either the recently developed CD futures contract or the T-Bill futures contract. These results are also compared with the performance of a portfolio-choice strategy and a routine hedging strategy. The analysis indicates that the CD futures market can serve a hedging purpose that is not served by the previously established T-Bill futures market.

Gregory D. Hawkins, Determinants of Corporate Leasing Policy: Discussion, The Journal of Finance, Vol. 40, No. 3, Papers and Proceedings of the Forty-Third Annual Meeting American Finance Association, Dallas, Texas, December 28-30, 1984 (Jul., 1985), pp. 909-910

Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. The new tests continue to find evidence against the model positing rational expectations and a constant required rate of return on equity.

Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. The new tests continue to find evidence against the model positing rational expectations and a constant required rate of return on equity.