HKUST Finance Symposium, and two anonymous reviewers of the Hong Kong Research Grants Council for their comments and suggestions. We are especially grateful to an anonymous JFE referee for helping to substantially improve the paper. We are also grateful to Ted Reeve for providing us with his derivative surveys of gold mining firms. The Research Grants Council of Hong Kong provided financial support for this project, and Harry Kam Ming Leung provided excellent research assistance. We are responsible for any remaining errors.

We use a real options approach to evaluate the performance of several proxy variables for a firm's investment opportunity set. The results show that, on a relative scale, the market-to-book assets ratio has the highest information content with respect to investment opportunities. Although both the market-to-book equity and the earnings-price ratios are related to investment opportunities, they do not contain information that is not already contained in the market-to-book assets ratio. Consistent with this finding, a common factor constructed from several proxy variables does not improve the performance of the market-to-book assets ratio. 2008 The Southern Finance Association and the Southwestern Finance Association.

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We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries. Copyright 2007 by The American Finance Association.

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.