Psychological Factors and Stock Option Exercise

Posted: 16 Mar 1999

See all articles by Chip Heath

Chip Heath

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

Multiple version iconThere are 2 versions of this paper

Abstract

We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors influence exercise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends--exercise is positively related to stock returns during the preceding month and negatively related to returns over longer horizons. Consistent with psychological models of values that include reference points, employee exercise activity doubles when the stock price exceeds the maximum price attained during the previous year.

JEL Classification: D81, J33, M12

Suggested Citation

Heath, Chip and Huddart, Steven J. and Lang, Mark H., Psychological Factors and Stock Option Exercise. Quarterly Journal of Economics. Available at SSRN: https://ssrn.com/abstract=146736

Chip Heath

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Steven J. Huddart (Contact Author)

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

Mark H. Lang

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,377
PlumX Metrics