Hostname: page-component-848d4c4894-xfwgj Total loading time: 0 Render date: 2024-06-17T00:23:09.986Z Has data issue: false hasContentIssue false
  • English
  • Français

Commodity Contracts and Common Stocks as Hedges against Relative Consumer Price Risk

Published online by Cambridge University Press:  06 April 2009

Victor L. Bernard  and
Thomas J. Frecka
Get access Rights & Permissions [Opens in a new window]

Abstract

Evidence provided here suggests that investors could have identified, ex ante, portfolios that hedge against uncertainty in the prices of three major categories of consumption: food, shelter, and transportation. This finding has implications for the practical importance of multi-period capital asset pricing theories that assume investors can identify such hedge portfolios. The study also provides some surprising evidence about the usefulness of common stocks and commodity futures contracts in hedging against specific price inflation. Certain combinations of common stocks serve as effective hedges, but combinations of commodity futures contracts contribute nothing to hedging ability.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 22 , Issue 2 , June 1987 , pp. 169 - 188
Copyright
Copyright © School of Business Administration, University of Washington 1987

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Bernard, V. “The Use of Market Data and Accounting Data in Hedging against Consumer Price Inflation.” Journal of Accounting Research, 22 (Autumn 1984), 445–466.Google Scholar
[2]Bernard, V., and Frecka, T.. “Evidence on the Existence of Common Stock Inflation Hedge Portfolios.” Journal of Financial Research, 6 (12 1983), 301–311.CrossRefGoogle Scholar
[3]Black, F. “Capital Market Equilibrium with Restricted Borrowing.” Journal of Business, 45 (07 1972), 444–455.CrossRefGoogle Scholar
[4]Bodie, Z., and Rosansky, V.. “Risk and Return in Commodity Futures.” Financial Analysts Journal, 36 (05/06 1980), 27–39.CrossRefGoogle Scholar
[5]Box, G., and Jenkins, G.. Time Series Analysis, Forecasting and Control. San Francisco: Holden-Day, Inc. (1970).Google Scholar
[6]Breeden, D. “An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities.” Journal of Financial Economics, 7 (09 1979), 265–296.CrossRefGoogle Scholar
[7]Breeden, D. “Consumption Risk in Futures Markets.” Journal of Finance, 35 (05 1980), 503–520.CrossRefGoogle Scholar
[8]Breeden, D. “Futures Markets and Commodity Options: Hedging and Optimality in Incomplete Markets.” Journal of Economic Theory, 32 (04 1984), 275–300.Google Scholar
[9]Cox, J.; Ingersoll, J.; and Ross, S.. “The Relation between Forward Prices and Futures Prices.” Journal of Financial Economics, 9 (12 1981), 321–346.Google Scholar
[10]Dusak, K. “Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums.” Journal of Political Economy, 81 (12 1973), 1387–1406.Google Scholar
[11]Fama, E., and MacBeth, J.. “Risk Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, 81 (05 1973), 607–636.CrossRefGoogle Scholar
[12]Gay, G., and Manaster, S.. “Hedging against Commodity Price Inflation: Stocks and Bills as Substitutes for Futures Contracts.” Journal of Business, 55 (07 1982), 317–343.CrossRefGoogle Scholar
[13]Herbst, A. “Hedging against Specific Price Index Inflation with an Optimized Futures Portfolio.” Center for Study of Futures Markets. Working Paper No. 73, Columbia Univ. (04 1984).Google Scholar
[14]Ibbotson, R., and Sinquefield, R.. Stocks, Bonds, Bills, and Inflation: The Past (1926–1976) and the Future (1977–2000). New York: Financial Analysts Research Foundation (1977).Google Scholar
[15]Jarrow, R., and Oldfield, G.. “Forward Contracts and Futures Contracts.” Journal of Financial Economics, 9 (12 1981), 373–382.Google Scholar
[16]Jones, E. “Intertemporal Asset Pricing in Monetary and Multiple Consumption Good Economies.” Working Paper No. 83–10, Harvard Business School (08 1982).Google Scholar
[17]Long, J. “Stock Prices, Inflation, and the Term Structure of Interest Rates.” Journal of Financial Economics, 1 (07 1974), 131–170.CrossRefGoogle Scholar
[18]Merton, R. “An Intertemporal Capital Asset Pricing Model.” Econometrica, 41 (09 1973), 867–887.CrossRefGoogle Scholar
[19]Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica, 34 (10 1966), 768–783.CrossRefGoogle Scholar
[20]Richard, S., and Sundaresan, M.. “A Continuous Time Equilibrium Model of Forward Prices and Future Prices in a Multi-Good Economy.” Journal of Financial Economics, 9 (12 1981), 347–371.Google Scholar
[21]Ross, S. “The Arbitrage Theory of Capital Asset Pricing.” Journal of Economic Theory, 3 (12 1976), 341–360.Google Scholar
[22]Schipper, K., and Thompson, R.. “Common Stocks as Hedges against Shifts in the Consumption or Investment Opportunity Set.” Journal of Business, 54 (04 1981), 305–328.Google Scholar
[23]Sharpe, W. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, 19 (09 1964), 425–442.Google Scholar
[24]Theil, H.Principles of Econometrics. New York: Wiley and Sons (1971).Google Scholar