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Information, Insider Trading, Executive Reload Stock Options, Incentives, and Regulation

Author

Listed:
  • David B. Colwell

    (UNSW Business School - UNSW - University of New South Wales [Sydney])

  • David Feldman

    (UNSW Business School - UNSW - University of New South Wales [Sydney])

  • Wei Hu

    (Curtin University)

  • Monique Pontier

    (IMT - Institut de Mathématiques de Toulouse UMR5219 - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique)

Abstract

We introduce a theoretical model of executives with insider information (insider-executives) granted incentivizing executive stock options (ESO). We show that while insider-executives optimize their wealth, using their insider information nullies ESO incentives, misaligning their and shareholders' interests. We oer realigning methods: granting insider-executives reload stock options (RSO) and imposing blackout trading periods (blackouts). Eective blackouts keep insider-executives incentivized without being overly restrictive, i.e., without reducing their welfare below that of outsiders. We introduce RSO pricing for insider-executives and oer policy implications: reestablishing the currently out-of-favor RSO, and allowing rms, not regulators, to set blackout periods on securities they issue.

Suggested Citation

  • David B. Colwell & David Feldman & Wei Hu & Monique Pontier, 2023. "Information, Insider Trading, Executive Reload Stock Options, Incentives, and Regulation," Working Papers hal-04382414, HAL.
    • Handle: RePEc:hal:wpaper:hal-04382414
    Note: View the original document on HAL open archive server: https://hal.science/hal-04382414
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    File URL: https://hal.science/hal-04382414/document
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    More about this item

    Keywords

    JEL Codes: G11 G13 C02 C61 Executive Stock Options Insider Information Constrained Portfolio Optimization Non-Hedgeable Non-Transferable Reload Enlarged Filtration; JEL Codes: G11; G13; C02; C61 Executive Stock Options; Insider Information; Constrained Portfolio Optimization; Non-Hedgeable; Non-Transferable; Reload; Enlarged Filtration;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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