Managers are acknowledged to have their own style when taking corporate decisions. Personal characteristics of CEOs are empirically important determinants of a large range of corporate variables. The behavioural approaches to corporate finance offer a useful complement to the other paradigms in the field in explaining some corporate policies.

However, there are still a number of unexplored research questions. One of these is to what extent the corporate risk management policies of non-financial firms departs from textbook hedging.

More specifically, do managers select the amount of derivatives according to some optimal hedging policy, or are they just taking active views, which reflect their personal preferences, attitudes, or skills?

A growing theoretical literature in behavioural finance shows that several biases, like overconfidence, representativeness and narrow framing, could induce investors and managers to incorporate their views into their financial decision making.

In this paper, the researchers study to what extent CEO personal beliefs and individual characteristics explain the time-series variation of foreign currency derivatives beyond industry, firm, and market fundamentals.

They find that firms where the CEO holds an MBA degree, is younger, and has less previous working experience speculate more. These results are consistent with overconfident managers taking more risk.