Psychological Factors and Stock Option Exercise
Open Access
- 1 May 1999
- journal article
- Published by Oxford University Press (OUP) in The Quarterly Journal of Economics
- Vol. 114 (2), 601-627
- https://doi.org/10.1162/003355399556089
Abstract
We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors influence exercise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends—exercise is positively related to stock returns during the preceding 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.Keywords
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