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

This paper shows that managers' personal beliefs and individual characteristics explain a large share of the substantial time-variation of derivatives use beyond firm, industry, and market fundamentals. We construct a panel data set of foreign currency derivatives holdings and currency exposures for U.S. non-nancial firms. We use a novel approach to build a firm-specic foreign exchange return. We nd that managers adjust derivatives notional amounts in response to past foreign exchange returns, as if they were forming views on future currency prices. We then construct an empirical measure of speculative behavior for each firm to investigate the prole of the speculator. Firms where the CEO holds an MBA degree, is younger, and has less previous working experience speculate more. These results are consistent with overcondent managers taking more risk.