Risk and hedging behavior: The role and determinants of latent heterogeneity

Joost M.E. Pennings, Philip Garcia

Research output: Contribution to journalArticlepeer-review


The notion of heterogeneous behavior is well grounded in economic theory. Recently it has been shown in a hedging context that the influence of risk attitudes and risk perceptions varies for different segments using a generalized mixture regression model. Here, using recently developed individual risk attitude measurement techniques and experimental and accounting data from investors with differing decision environments, we examine the determinants of heterogeneity in hedging behavior in a concomitant mixture regression framework. Allowing for latent heterogeneity, we find that risk attitudes and risk perceptions do not influence behavior uniformly and that the heterogeneity is influenced by manager's focus on shareholder value and the firm's capital structure.

Original languageEnglish (US)
Pages (from-to)373-401
Number of pages29
JournalJournal of Financial Research
Issue number4
StatePublished - Dec 2010

ASJC Scopus subject areas

  • Accounting
  • Finance


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