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The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging

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  • John D. Knopf

    (Seton Hall University,)

  • Jouahn Nam

    (Pace University,)

  • John H. Thornton Jr.

    (Kent State University)

Abstract

We use estimates of the Black-Scholes sensitivity of managers' stock option portfolios to stock return volatility and the sensitivity of managers' stock and stock option portfolios to stock price to test the relationship between managers' risk preferences and hedging activities. We find that as the sensitivity of managers' stock and stock option portfolios to stock price increases, firms tend to hedge more. However, as the sensitivity of managers' stock option portfolios to stock return volatility increases, firms tend to hedge less. Copyright The American Finance Association 2002.

Suggested Citation

  • John D. Knopf & Jouahn Nam & John H. Thornton Jr., 2002. "The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging," Journal of Finance, American Finance Association, vol. 57(2), pages 801-813, April.
  • Handle: RePEc:bla:jfinan:v:57:y:2002:i:2:p:801-813
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