Recently, the Shanghai Futures Exchange (SHFE) introduced gold futures trading in China. This paper is the first to study the SHFE gold futures, and to evaluate the futures hedging effectiveness since the introduction. The results show that hedging with gold futures reduces the variance of a...

Financially constrained firms can use hedging to lower the risk of financial distress. However, spending scarce resources on hedging exacerbates the underinvestment problem of these firms. We develop a model in which this cost of hedging is traded off against a reduction in the risk of being...