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Private Information in Executive Stock Option Trades: Evidence of Insider Trading in the UK
Author(s) -
KYRIACOU KYRIACOS,
LUINTEL KUL B.,
MASE BRYAN
Publication year - 2010
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2009.00775.x
Subject(s) - insider trading , remuneration , non qualified stock option , stock options , business , stock (firearms) , private information retrieval , insider , moneyness , restricted stock , stock trading , finance , economics , financial economics , stock market , mechanical engineering , paleontology , statistics , mathematics , horse , political science , law , engineering , biology
UK executives' stock option exercises and associated sell decisions are motivated by private, inside, information. Executives use their inside information to lock in short‐term gains, and to sell stock acquired prior to negative abnormal stock returns. This informed trading is robust to the alternative factors that might motivate the exercise of executive stock options, including option moneyness and value of exercise. We suggest that the disparity in informed trading between US and UK executives' option trades is related to important differences in the proportion of executive remuneration linked to options, the regulation of options, and the taxation of option gains.