Revisiting Stock Option Exercise and CEO Overconfidence

34 Pages Posted: 22 Nov 2017 Last revised: 15 Jun 2019

See all articles by Chris Mace

Chris Mace

University of Utah, David Eccles School of Business

Date Written: November 13, 2017

Abstract

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

Mace, Chris, Revisiting Stock Option Exercise and CEO Overconfidence (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=3070678 or http://dx.doi.org/10.2139/ssrn.3070678

Chris Mace (Contact Author)

University of Utah, David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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