You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:


Log in to your personal account or through your institution.

Executive Stock Option Exercises and Inside Information

Jennifer N. Carpenter and Barbara Remmers
The Journal of Business
Vol. 74, No. 4 (October 2001), pp. 513-534
DOI: 10.1086/322894
Stable URL:
Page Count: 22
Subjects: Business Finance
  • Download PDF
  • Add to My Lists
  • Cite this Item
Executive Stock Option Exercises and Inside Information
We're having trouble loading this content. Download PDF instead.


This article examines whether insiders use private information to time the exercises of their executive stock options. Before May 1991, insiders had to hold the stock acquired through option exercise for 6 months. Exercises from that regime precede significantly positive abnormal stock performance, suggesting the use of inside information to time exercises. By contrast, we find little evidence of such timing since insiders have been able to sell acquired shares immediately. Now, such timing should show up as negative abnormal stock returns after option exercise. However, we find negative stock performance only after exercises by top managers at small firms.

Notes and References

This item contains 26 references.

  • ['Berk, J. B. 1995. A critique of size‐related anomalies. Review of Financial Studies 8:275–86.']
  • ['Bettis, J. C.; Coles, J. L.; and Lemmon, M. L. 2000. Corporate policies restricting trading by insiders. Journal of Financial Economics 57:191–220.']
  • ['Brav, A., and Gompers, P. A. 1997. Myth or reality? The long‐run underperformance of initial public offerings: Evidence from venture and nonventure capital‐backed companies. Journal of Finance 52:1791–1821.']
  • ['Carhart, M. M. 1997. On persistence in mutual fund performance. Journal of Finance 52:57–82.']
  • ['Chan, L. K. C.; Jegadeesh, N.; and Lakonishok, J. 1996. Momentum strategies. Journal of Finance 51:1681–1713.']
  • ["Desai, H., and Jain, P. C. 1995. An analysis of the recommendations of the “superstar” money managers at Barron's annual roundtable. Journal of Finance 50:1257–73."]
  • ['Fama, E. F., and French, K. R. 1992. The cross‐section of expected stock returns Journal of Finance 47:427–66.']
  • ['Fama, E. F., and French, K. R. 1993. Common risk factors in the returns of stocks and bonds. Journal of Financial Economics 33:3–56.']
  • ['Fama, E. F., and French, K. R. 1996. Multifactor explanations of asset pricing anomalies. Journal of Finance 51:55–84.']
  • ['Huddart, S., and Lang, M. 1996. Employee stock option exercises: An empirical analysis. Journal of Accounting and Economics 21:5–43.']
  • ['Jaffe, J. F. 1974. Special information and insider trading. Journal of Business 47:410–28.']
  • ['Jegadeesh, N., and Titman, S. 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance 48:65–91.']
  • ['Jeng, L. A. 1998. Corporate insiders, market makers, and the window of opportunity. Working paper. Boston: Boston University.']
  • ['Jeng, L. A.; Metrick, A.; and Zeckhauser, R. 2000. Estimating the returns to insider trading: A performance‐evaluation perspective. Working Paper no. W6913. Cambridge, Mass.: National Bureau of Economic Research.']
  • ['Lakonishok, J., and Lee, I. 2001. Are insiders’ trades informative? Review of Financial Studies 14:79–111.']
  • ['Lorie, J. H., and Niederhoffer, V. 1968. Predictive and statistical properties of insider trading. Journal of Law and Economics 11:35–51.']
  • ['Loughran, T., and Ritter, J. 1995. The new issues puzzle. Journal of Finance 50:23–52.']
  • ['Lyon, J. D.; Barber, B. M.; and Tsai, C. 1999. Improved methods for tests of long‐run abnormal stock returns. Journal of Finance 54:165–201.']
  • ['Mandelker, G. 1974. Risk and return: The case of merging firms. Journal of Financial Economics 1:303–35.']
  • ['Michaely, R., and Womack, K. L. 1998. Conflicts of interest and the credibility of underwriters’ analysts’ recommendations. Review of Financial Studies 12:653–86.']
  • ['Mitchell, M. L., and Stafford, E. 1997. Managerial performance and long‐term stock price performance. Journal of Business 73:287–320.']
  • ['Ofek, E., and Yermack, D. 2000. Taking stock: Equity‐based compensation and the evolution of managerial ownership. Journal of Finance 55:1367–84.']
  • ['Seyhun, H. N. 1986. Insiders’ profits, costs of trading, and market efficiency. Journal of Financial Economics 16:189–212.']
  • ['Seyhun, H. N. 1992. The effectiveness of the insider‐trading sanctions. Journal of Law and Economics 35:149–82.']
  • ['Seyhun, H. N. 1998. Investment Intelligence from Insider Trading. Cambridge, Mass.: MIT Press.']
  • ['Yermack, D. 1997. Good timing: CEO stock option awards and company news announcements. Journal of Finance 52:449–76.']