This paper investigates the impact of managerial hedging on shareholder wealth when managers are able to choose the level of effort they expend in managing firms' investments. We demonstrate that shareholders will prefer managers to hedge observable unsystematic risks because they expect that...

This paper presents a model of equilibrium in a capital market for linear shares of risky firms andin a market for managerial labor in which market participants function as both investors and managers. The model yields interesting and relevant equilibrium conditions that integrate earlier...