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We show that managerial overconfidence, which h as been foun d to i nfluence a num ber of corporate financial decisions, also affects corporate risk management. We find tha t managers i ncrease their speculative activities using derivatives following s peculative gains, while they do not reduce their speculative activities following speculative losses. This asymmetric response follows from selective selfattribution: successes tend to be attr ibuted to one's own skill, while failu res tend to be attributed to ba d luck. Thus, our results show that managerial behavioral biases can also impact corporate risk management.November 20, 2011 JEL Classification: G11; G14; G32; G39 Keywords: corporate risk management; behavioral biases; managerial overconfidence; speculation  We thank Alex Butler, Sudheer Chava, Louis Ederington, Gary Emery, Dirk Jenter, Swami Kalpathy, Leonid Kogan, Shimon Kogan, Nan Li, Gustavo Manso, Bill Megginson, Darius Miller, Jun Pan, Roberto Rigobon, Martin Ruckes, Antoinette Schoar, Oliver Spalt, Per Stromberg, Rex Thomson, Pradeep Yadav, and seminar participants at MIT, University of Oklahoma, Humboldt University, University of Texas at Dallas, Southern Methodist University, Texas Christian University, ESMT Berlin, 2008 FMA Europe meetings, 2008 FMA meetings, 2009 EFA meetings and 2010 AFA meetings for valuable discussions and comments. We are grateful to Ted Reeve for providing us with his derivatives surveys of gold mining firms and Leung Kam Ming for excellent research assistance. We also thank Anthony May and Jesus Salas for valuable assistance. This research has been supported by the CRC 649 of the German Science Foundation. A part of this research was conducted when Chitru Fernando was a visiting professor at the SMU Cox School of Business. He thanks SMU for their gracious hospitality and the National Science Foundation (Grant No. ECS-0323620) for financial support. We are responsible for any remaining errors. Managerial Biases and Corporate Risk Management AbstractWe show t hat managerial overconfidence, wh ich has been found to influence a num ber of corporate financial decisions, also affects corp orate risk m anagement. We find that m anagers increase their speculative activities using derivatives following speculative gains, while they do not reduce their spe culative activities following speculative losses. Th is asymmetric response follows from selective self-attribution: successes tend to be attributed to one's own skill, while failures tend to be attributed to ba d luck. Thu s, our results show that managerial behavioral biases can also impact corporate risk management.

We show that managerial overconfidence, which h as been foun d to i nfluence a num ber of corporate financial decisions, also affects corporate risk management. We find tha t managers i ncrease their speculative activities using derivatives following s peculative gains, while they do not reduce their speculative activities following speculative losses. This asymmetric response follows from selective selfattribution: successes tend to be attr ibuted to one's own skill, while failu res tend to be attributed to ba d luck. Thus, our results show that managerial behavioral biases can also impact corporate risk management.November 20, 2011 JEL Classification: G11; G14; G32; G39 Keywords: corporate risk management; behavioral biases; managerial overconfidence; speculation  We thank Alex Butler, Sudheer Chava, Louis Ederington, Gary Emery, Dirk Jenter, Swami Kalpathy, Leonid Kogan, Shimon Kogan, Nan Li, Gustavo Manso, Bill Megginson, Darius Miller, Jun Pan, Roberto Rigobon, Martin Ruckes, Antoinette Schoar, Oliver Spalt, Per Stromberg, Rex Thomson, Pradeep Yadav, and seminar participants at MIT, University of Oklahoma, Humboldt University, University of Texas at Dallas, Southern Methodist University, Texas Christian University, ESMT Berlin, 2008 FMA Europe meetings, 2008 FMA meetings, 2009 EFA meetings and 2010 AFA meetings for valuable discussions and comments. We are grateful to Ted Reeve for providing us with his derivatives surveys of gold mining firms and Leung Kam Ming for excellent research assistance. We also thank Anthony May and Jesus Salas for valuable assistance. This research has been supported by the CRC 649 of the German Science Foundation. A part of this research was conducted when Chitru Fernando was a visiting professor at the SMU Cox School of Business. He thanks SMU for their gracious hospitality and the National Science Foundation (Grant No. ECS-0323620) for financial support. We are responsible for any remaining errors. Managerial Biases and Corporate Risk Management AbstractWe show t hat managerial overconfidence, wh ich has been found to influence a num ber of corporate financial decisions, also affects corp orate risk m anagement. We find that m anagers increase their speculative activities using derivatives following speculative gains, while they do not reduce their spe culative activities following speculative losses. Th is asymmetric response follows from selective self-attribution: successes tend to be attributed to one's own skill, while failures tend to be attributed to ba d luck. Thu s, our results show that managerial behavioral biases can also impact corporate risk management.

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