Managerial Biases And Selective Hedging

Using data on the selective hedging activity of a sample of 92 North American gold mining firms, the authors find that the degree of selective hedging is related to past performance of derivative positions after controlling for changes in the value of the underlying commodity (gold). They interpret this finding as consistent with the hypothesis that managers place derivative positions into a separate mental account and make hedging decisions based on the performance of derivatives positions alone.