Who times the foreign exchange market? Corporate speculation and CEO characteristics

This paper documents that managers' compensation and personal characteristics explain a large share of the substantial time-variation of derivatives use, suggesting that corporate risk management deviates from textbook hedging. We construct a panel data set of foreign currency derivatives holdings and currency exposures for U.S. non-financial firms. We use a novel approach to build a firm-specific foreign exchange return. We find that managers adjust derivatives notional amounts in response to past foreign exchange returns, as if they were forming views on future foreign-exchange returns using technical analysis. We then construct an empirical measure of speculative behavior for each firm to investigate the profile of the speculator. Firms where the CEO holds an MBA degree, is younger, and has less previous working experience speculate more.