Discussion of 'Information Distribution within Firms: Evidence from Stock Option Exercises'
Posted: 18 Jan 2003
The Huddart and Lang (2002) study documents that higher level of employee option exercise during a particular month is associated with lower stock returns in subsequent months, and interprets this finding as evidence that employees exploit private information in their exercise decisions. While the paper extends the insider trading literature that has largely focused on common stock transactions by top executives, a number of inconsistencies with inferences from prior studies remain unresolved. Moreover, the current research methodology does not establish a direct link to the private information that employees supposedly exploit. Establishing a more direct link between exercise decisions and private information is especially warranted here in light of the somewhat surprising finding that exercises by senior employees are no more informative than those by lower rank employees.
Keywords: insider trading, stock option exercise, employee compensation
JEL Classification: M41, G14, J33
Suggested Citation: Suggested Citation