Publication Date

1982

Document Type

Dissertation/Thesis

First Advisor

Wilbur, William L.

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Finance

LCSH

Treasury bills--United States; Hedging (Finance)

Abstract

The introduction of financial instrument contracts has given the financial decision-maker a new set of investment alternatives for the efficient management of corporate assets and liabilities. This study looks into the feasibility of using the 90-day T-bill futures market as a risk-mangement technique for a corporation's marketable securities portfolio. The daily trading activity of a portfolio of three-month Treasury Bills is simulated omer the five- year period from July 1, 1976 to June 30, 1981, The portfolio, referred to as the Cash Model, is comparative in size to International Business Machine Corporation's marketable securities portfolio during the test period. The performance of the unhedged Cash Model in terms of risk-amended returns and interest-rate risk is compared to the simulated results of cash-maragement programs which automatically offset the long-cash position with a short-position in the T-bill futures market. The results of the automatic offset strategies are then compared to the results of a number of different strategies which incorporate mechanical trading rules to time the placing and lifting of the hedge. The evidence leads to four conclusions: first, over the five-year test period, the T-bill futures market was an effective tool for reducing interest-rate market risk; second, an automatic hedging strategy was highly effective during periods of time when the yield curve was inverted (i.e,, a negative-carry market), but only moderately so during times when the yield curve was positively sloped; third, the evidence irdicates that a policy of selectively hedging the portfolio appears to be worthwhile, and in the case of a long-cash/shcrt-futures situation, the hedging activity should be limited to those times when negative-carry market conditions prevail. Fourth, the modified offset strategies which incorporated technical analysis techniques did not prove worthwhile in terms of reducing interest-rate market risk.

Comments

Includes bibliographical references.||Includes illustrations.

Extent

xiii, 269 pages

Language

eng

Publisher

Northern Illinois University

Rights Statement

In Copyright

Rights Statement 2

NIU theses are protected by copyright. They may be viewed from Huskie Commons for any purpose, but reproduction or distribution in any format is prohibited without the written permission of the authors.

Media Type

Text

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