The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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The Relation Between Default‐Free Interest Rates and Expected Economic Growth Is Stronger Than You Think
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01126.x
AVRAHAM KAMARA
The relation between default‐free interest rates and expected economic growth is substantially stronger than suggested by extant literature. Futures‐implied Treasury bill yield spreads are more highly correlated with future real consumption, investment, and GNP growth than spot spreads. This stronger relation arises because using futures removes a component of the spot term structure that covaries negatively with real economic growth. Treasury forward rates from spot bills contain a premium for the risk that short‐sellers will default. This risk premium is negatively related to expected economic growth.
Optimal Hedging in Futures Markets with Multiple Delivery Specifications
Published: 09/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb03924.x
AVRAHAM KAMARA, ANDREW F. SIEGEL
Nearly all futures contracts allow delivery of any of several qualities of the underlying asset. Consequently, the price of the futures contract is associated more with the price of the expected cheapest deliverable variety than with the price of the par‐delivery variety. The delivery specifications introduce a delivery risk for every hedger in the market. We derive the optimal hedging strategies in these markets. Their hedging effectiveness is evaluated for wheat futures contracts in Chicago. Hedging optimally would have significantly reduced the variance of the rates of return on hedges while yielding similar mean returns.