Psychological Factors and Stock Option Exercise
Stanford Graduate School of Business
Steven J. Huddart
Pennsylvania State University, University Park - Department of Accounting
Mark H. Lang
University of North Carolina at Chapel Hill
March 25, 1998
We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors in*uence exer- cise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends|exercise is positively related to stock returns during the pre- ceding month and negatively related to returns over longer horizons. Consistent with psychological models of values that include reference points, employee exercise activity roughly doubles when the stock price exceeds the maximum price attained during the previous year.
Number of Pages in PDF File: 47
JEL Classification: D81, J33, M12
Date posted: April 19, 1998
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