Psychological Factors and Stock Option Exercise

47 Pages Posted: 19 Apr 1998  

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

Date Written: March 25, 1998

Abstract

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.

JEL Classification: D81, J33, M12

Suggested Citation

Heath, Chip and Huddart, Steven J. and Lang, Mark H., Psychological Factors and Stock Option Exercise (March 25, 1998). Available at SSRN: https://ssrn.com/abstract=77488 or http://dx.doi.org/10.2139/ssrn.77488

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
814-865-3271 (Phone)
814-863-8393 (Fax)

HOME PAGE: http://www.personal.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)

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