Psychological Factors and Stock Option Exercise
47 Pages Posted: 19 Apr 1998
Date Written: March 25, 1998
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: Suggested Citation