Jankensgård, Håkan, Walking the Walk: Inside Ownership and Selective Hedging (September 16, 2015). Available for download at SSRN: http://ssrn.com/abstract=2662368

“Firms’ derivative portfolios are largely unpredictable, in the sense that the previous year’s portfolio is a poor predictor of the current one. This unpredictability partly reflects a common corporate practice known as ‘selective hedging’, i.e. adjusting the timing and size of hedging programs bases on market views. In this paper I examine if corporate governance arrangements influence the extent of selective hedging using hand-collected data from the oil and gas industry. The most robust result I find is that selective hedging increases in inside ownership, suggesting that entrenched managers hedge more selectively when outside monitoring is weak. It also suggests that overconfidence is real. Since they are betting with their own money, these managers and directors are, in an important sense, not only talking the talk but also walking the walk.”