Risk, ambiguity, and the exercise of employee stock options

Yehuda Izhakian and David Yermack

Journal of Financial Economics, 2017, vol. 124, issue 1, 65-85

Abstract: We investigate the importance of ambiguity, or Knightian uncertainty, in executives’ stock option exercise decisions. We develop an empirical estimate of ambiguity and include it in regression models alongside the traditional measure of risk, equity volatility. We show that each variable has a significant effect on the timing of option exercises, with volatility causing executives to hold options longer to preserve option value, and ambiguity increasing the tendency for executives to exercise early.

Keywords: Ambiguity measurement; Ambiguity aversion; Employee stock options (search for similar items in EconPapers)
JEL-codes: C65 D81 D83 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:124:y:2017:i:1:p:65-85

DOI: 10.1016/j.jfineco.2016.12.006

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