Revisiting Stock Option Exercise and CEO Overconfidence
34 Pages Posted: 22 Nov 2017 Last revised: 15 Jun 2019
Date Written: November 13, 2017
A growing body of literature claims that CEOs are irrationally overconfident. I find evidence that this "overconfident" behavior is actually quite profitable, indicating that CEOs exhibit behavioral biases less often than previously thought. Firms with "overconfident" CEOs consistently earn returns above the S&P500, with significant Fama-French five-factor alphas. I find that most overconfidence measures mechanically sort firms on profitability and growth, and this subsequently leads to the appearance of CEO overconfidence.
Keywords: CEO, Overconfidence, Behavioral Finance, Covariate Imbalance, Profitability
JEL Classification: G02, G12, G17, G32, M10
Suggested Citation: Suggested Citation