Hedging - More than just numbers

Problem statement: Exchange rates have fluctuated since the beginning of trade, and there is nothing indicating that future exchange rates will become more stable. Firms have had to construct and implement a risk management program in order to offset any imbalance caused by fluctuating exchange rate. These programs are build by the evaluation of different factors. What this dissertation has done is together with the tradional factors add factors that have developed through the research of behavioural finance, such as loss aversion and overconfidence. Purpose: The purpose of this dissertation is to examine the different factors that influence a firms hedging decision. Furthermore the purpose is not only to test one factor at a time but rather several factors simultaneous. Methodology: We have used an eclectic approach to fulfil our purpose. With the several theories as base we have created hypotheses, which we then have tested in reality. The analysis has been made by regression and qualitatively studies on 29 companies. Conclusions: We have conducted two kinds of analysis, one regression and one qualitatively. We started out with 15 factors. In our final model we had nine plus two left. With these 11 factors we could explain approximately 60% of a firms hedging behaviour