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Momentum profits depend mainly on the short leg and therefore on barriers to short sales. Our research indicates that the decline in momentum profitability in the past 2 decades is driven partly by a contemporaneous growth in stock options trading. Stock options offer an alternative to short selling, augmenting the stock lending market, and thereby contributing to improved pricing efficiency. The resulting reduction in barriers to short sales contributes to lower returns to momentum trading from the short leg. Our results persist after matching stocks with and without options based on different firm-level characteristics. [ABSTRACT FROM AUTHOR]

We examine the predictability of stock returns using implied volatility spreads (VS) from individual (nonindex) options. VS can occur under simple no-arbitrage conditions for American options when volatility is time-varying, suggesting that the VS-return predictability could be an artifact of firms' sensitivities to aggregate volatility. Examining this empirically, we find that the predictability changes systematically with aggregate volatility and is positively related to the firms' sensitivities to volatility risk. The alpha generated by VS hedge portfolios can be explained by aggregate volatility risk factors. Our results cannot be explained by firm-specific informed trading, transaction costs, or liquidity. [ABSTRACT FROM AUTHOR]

The authors examine the role of stock liquidity in CEO equity compensation design. For a sample of publicly traded firms from 2007 to 2020, the authors find that greater stock liquidity is associated with a higher proportion of stock awards relative to the proportion of options in CEO equity compensation. The results of this study suggest that stock price informativeness on the grant date has a differential effect on the preference for the type of equity compensation awarded to CEOs. The empirical results are supported by multivariate analyses using alternative measures of stock liquidity and a two-stage least squares (2SLS) specification that alleviates endogeneity concerns. Furthermore, the authors document that the firm-specific increase in the proportion of stock awards compared to the proportion of stock options is associated with a firm-specific increase in stock liquidity. Collectively, the analyses suggest that stock liquidity as a measure of stock price informativeness contributes to the choice of CEO equity compensation design. [ABSTRACT FROM AUTHOR]

We develop a dynamic trade‐off model of managerial discretion to investigate how stock option compensation relates to managers' intertwined capital structure and dynamic investment decisions. Our model predicts that option grants provide managers with incentives to undertake both current and future investments, in sharp contrast to the effects of stock compensation. With an increase in option compensation, managers in low‐ (high‐) risk firms tend to increase (decrease) firm leverage, while the opposite is true when stock pay increases. This result offers an innovative prospective on the empirical tests of the relationship between option compensation and capital structure. [ABSTRACT FROM AUTHOR]

This paper studies equity basket options – i.e. multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks – and develops a new and innovative approach to ensure consistency between options on individual stocks and the index comprising them. Specifically, we show how to resolve a well-known problem that when individual constituent distributions of an equity index are inferred from the single-stock option markets and combined in a multi-dimensional local/stochastic volatility model, the resulting basket option prices will not generate a skew matching that of the options on the equity index corresponding to the basket. [ABSTRACT FROM AUTHOR]

Purpose: The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints. Design/methodology/approach: This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not. Findings: Using SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms. Originality/value: This paper is the first to the best of the authors' knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models. [ABSTRACT FROM AUTHOR]

This study examines the governing role of gender diversity on the board of directors on conditional accounting conservatism and executive remuneration. Using proprietary data about women representation on the board of directors to investigate the impact on the choice between accounting methods and the structure of executives remuneration. A sample of listed firms on the London Stock Exchange from 2019 to 2022 is used. The results first document that firms exhibit a higher level of conditional accounting conservatism when women represent a larger fraction of the board. The analyses further establish different relationships between performance-based versus equity-based remunerations and conditional accounting conservatism. Last, the results show that women representation is related to pay out policy and its impact on conditional accounting conservatism. The findings also offer novel insights on the governing role and consequences of gender diversity of woman chairperson and/or woman CEO. Overall, contrary to notions of opportunistic behavior of executives, the results find that boards achieve more level of governance with more women representation. [ABSTRACT FROM AUTHOR]

We address the stock predictability puzzle, a challenge in the stock market often discussed in behavioral finance. Our approach formulates a statistical model within rational finance, avoiding reliance on behavioral finance assumptions, and integrates stock return predictability into the Black–Scholes option pricing framework. Empirical analysis focuses on the predictability of stock prices by option and spot traders, introducing a forward‐looking measure we term "implied excess predictability." Results show that option traders' predictability of stock returns positively correlates with moneyness, whereas for spot traders, this relationship is inverse. These findings suggest a potential asymmetry in stock price predictability between spot and option traders. Additionally, we demonstrate the importance of incorporating stock return predictability into option pricing formulas, particularly for options with strike prices significantly different from the stock price. Conversely, when moneyness is close to unity, predictability is not integrated into option pricing, indicating equal information among spot and option traders. Comparison of volatility measures reveals the difference between implied and realized variances or variance risk premia as potential predictors of stock returns. [ABSTRACT FROM AUTHOR]

Interest rate derivative pricing is a critical aspect of fixed‐income markets, where efficient methods are essential. This study introduces a novel approach to pricing path‐dependent interest rate derivatives within a broad class of affine jumps. The study's particular setting is the Fourier‐cosine series (COS) method adaptation, which offers an accurate and computationally efficient method for pricing interest rate derivatives. The Fourier‐cosine series approach can be used to compute probability density functions and option pricing with a linear computing complexity and exponential convergence rate. The lack of a quick and precise pricing technique for Asian interest rate options in diverse fixed‐income market scenarios is a research gap that is being addressed. This approach closes this gap by providing quasi‐closed and closed‐form equations for a range of density and characteristic functions, resulting in precise pricing. The results demonstrate the versatility of the COS method in interest rate markets. Similar to what has been previously reported for stock options, the numerical findings demonstrate the extreme precision and computing speed of the pricing and hedging estimations provided here. This method is an innovative approach to interest rate derivative pricing, offering researchers and practitioners a powerful tool for efficiently calculating prices and calibrating options across strikes and maturities. [ABSTRACT FROM AUTHOR]

Based upon behavioral perspective and agency theory, this paper attempts to investigate the effect of CEO stock option pay on firms' risk‐taking investments in the restaurant sector. Specifically, this paper proposes that option‐loaded CEOs tend to make risky investments. In addition, we investigate how the prior stock performance of a firm and its CEOs' characteristics moderate this relationship. The findings of this paper show that option‐loaded CEOs are more likely to engage in risk‐taking investments. However, this positive main relationship is diminished when a firm has a good prior stock performance, when a CEO has a longer tenure, and when he or she becomes aged. Given the lack of empirical literature that explores the corporate governance in the hospitality literature, this study adds value to the existing research by further investigating the effect of CEO stock option pay scheme on restaurant firms' risk‐taking behavior. [ABSTRACT FROM AUTHOR]

Executive stock options are provided to risk‐averse CEOs to encourage risk‐taking. We show that the efficacy of such stock options is moderated by CEOs' regulatory focus—their intrinsic motivations to avoid losses or achieve gains. We show that stock options have a negligible impact on the risk‐taking behavior of CEOs who are intrinsically motivated to avoid losses or take on risks. The impact of stock options on firm risk is strongest among CEOs whose regulatory focus is moderate and whose behavior is thus more malleable. Our paper shows that CEO intrinsic risk‐taking motivations have important implications for the effectiveness of extrinsic risk‐taking incentives provided by stock options. [ABSTRACT FROM AUTHOR]

We characterize the unique equilibrium in an economy populated by strategic CARA investors who trade multiple risky assets with arbitrarily distributed payoffs. We use our explicit solution to study the joint behavior of illiquidity of option contracts. Option bid-ask spreads are proportional to risk aversion and risk-neutral variances of option payoffs. Spreads may decrease in risk aversion, physical variance, open interest, and increase after earnings announcements in a result contrary to conventional wisdom. All these predictions are confirmed empirically using a large panel data set of U.S. stock options. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

This study shows that executive stock options are an effective compensation policy that takes corporate investment to the optimal level in the presence of unpredictable risk from economic policy uncertainty (EPU). We aim to explore whether stock options provide incentives for executives to choose a project that the optimal investment needs to be implemented. We use delta and vega as a proxy for price sensitivity and compensation sensitivity, respectively, to examine the interaction between executive stock options portfolio and EPU. We use delta for price sensitivity and vega for compensation sensitivity, respectively, to examine the interaction between executive stock options portfolio and EPU. Our analysis shows that a well-designed compensation structure motivates executives to maintain the optimal investment level when faced with unpredictable risks. [ABSTRACT FROM AUTHOR]

The article focuses on decisions to exercise and hold company stock at the maturity of a broad‐based employee stock options plan. It investigates why some participants choose an uncertain and risky future reward when an immediate and certain increase in wealth could be secured at exercise. It draws on and expands the "mixed gambles" perspective in behavioral agency theory, utilizing a combination of stock price data and employee survey data from British companies with tax‐approved stock option plans. It is found that the decision to take a gamble is influenced (negatively) by the extent of stock price lows (relative to prices at exercise) in the year prior to exercise, and by the risk preferences of the option holder. The findings contribute to further development of the "mixed gambles" perspective as an explanation of stock option behavior, showing that individual characteristics as well as some stock price movements affect behavior. [ABSTRACT FROM AUTHOR]

To better simulate the prices of underlying assets and improve the accuracy of pricing financial derivatives, an increasing number of new models are being proposed. Among them, the Lévy process with jumps has received increasing attention because of its capacity to model sudden movements in asset prices. This paper explores the Hamilton–Jacobi–Bellman (HJB) equation with a fractional derivative and an integro-differential operator, which arise in the valuation of American options and stock loans based on the Lévy- α -stable process with jumps model. We design a fast solution strategy that includes the policy iteration method, Krylov subspace method, and banded preconditioner, aiming to solve this equation rapidly. To solve the resulting HJB equation, a finite difference method including an upwind scheme, shifted Grünwald approximation, and trapezoidal method is developed with stability and convergence analysis. Then, an algorithmic framework involving the policy iteration method and the Krylov subspace method is employed. To improve the performance of the above solver, a banded preconditioner is proposed with condition number analysis. Finally, two examples, sugar option pricing and stock loan valuation, are provided to illustrate the effectiveness of the considered model and the efficiency of the proposed preconditioned policy–Krylov subspace method. [ABSTRACT FROM AUTHOR]

STUDY QUESTION Does linzagolix administered orally once daily for up to 3 months at a dose of 75 mg alone or 200 mg in combination with add-back therapy (ABT) (1.0 mg estradiol; 0.5 mg norethindrone acetate, also known as norethisterone acetate [NETA]) demonstrate better efficacy than placebo in the management of endometriosis-related dysmenorrhea and non-menstrual pelvic pain? SUMMARY ANSWER Combining 200 mg linzagolix with ABT was found to significantly reduce dysmenorrhea and non-menstrual pelvic pain at 3 months of therapy, while a daily dose of 75 mg linzagolix yielded a significant decrease only in dysmenorrhea at 3 months. WHAT IS KNOWN ALREADY? A previously published Phase 2, dose-finding study reported that at a dose of 200 mg daily, linzagolix promotes full suppression of estradiol secretion to serum levels below 20 pg/ml and noted that the addition of ABT may be needed to manage hypoestrogenic side effects. At lower doses (75 mg and 100 mg/day), linzagolix maintains estradiol values within the target range of 20–60 pg/ml, which could be ideal to alleviate symptoms linked to endometriosis. STUDY DESIGN, SIZE, DURATION EDELWEISS 3 was a multicenter, prospective, randomized, placebo-controlled, double-blind, double-dummy Phase 3 study to evaluate the safety and efficacy of linzagolix for the treatment of moderate-to-severe endometriosis-associated pain. Treatment was administered orally once daily for up to 6 months. PARTICIPANTS/MATERIALS, SETTING, METHODS In the EDELWEISS 3 trial, 486 subjects with moderate-to-severe endometriosis-associated pain were randomized at a 1:1:1 ratio to one of the three study groups: placebo, 75 mg linzagolix alone or 200 mg linzagolix in association with ABT. Pain was measured daily on a verbal rating scale and recorded in an electronic diary. MAIN RESULTS AND THE ROLE OF CHANCE At 3 months, the daily 200 mg linzagolix dose with ABT met the primary efficacy objective, showing clinically meaningful and statistically significant reductions in dysmenorrhea and non-menstrual pelvic pain, with stable or decreased use of analgesics. The proportion of responders for dysmenorrhea in the 200 mg linzagolix with ABT group was 72.9% compared with 23.5% in the placebo group (P  < 0.001), while the rates of responders for non-menstrual pelvic pain were 47.3% and 30.9% (P  = 0.007), respectively. The 75 mg linzagolix daily dose demonstrated a clinically meaningful and statistically significant reduction in dysmenorrhea versus placebo at 3 months. The proportion of responders for dysmenorrhea in the 75 mg linzagolix group was 44.0% compared with 23.5% in the placebo group (P  < 0.001). Although the 75 mg dose showed a trend toward reduction in non-menstrual pelvic pain at 3 months relative to the placebo, it was not statistically significant (P  = 0.279). Significant improvements in dyschezia and overall pelvic pain were observed in both linzagolix groups when compared to placebo. Small improvements in dyspareunia scores were observed in both linzagolix groups but they were not significant. In both groups, hypoestrogenic effects were mild, with low rates of hot flushes and bone density loss of <1%. A daily dose of 200 mg linzagolix with ABT or 75 mg linzagolix alone was found to significantly reduce dysmenorrhea and non-menstrual pelvic pain also at 6 months of therapy. LIMITATIONS, REASONS FOR CAUTION Efficacy was compared between linzagolix groups and placebo; however, it would be useful to have results from comparative studies with estro-progestogens or progestogens. It will be important to ascertain whether gonadotropin-releasing hormone antagonists have significant benefits over traditional first-line medications. WIDER IMPLICATIONS OF THE FINDINGS Linzagolix administered orally once daily at a dose of 200 mg in combination with add-back therapy (ABT) demonstrated better efficacy and safety than placebo in the management of moderate-to-severe endometriosis-associated pain. The quality of life was improved and the risks of bone loss and vasomotor symptoms were minimized due to the ABT. The 75 mg dose alone could be suitable for chronic treatment of endometriosis-associated pain without the need for concomitant hormonal ABT, but further research is needed to confirm this. If confirmed, it would offer a viable option for women who do not want to wish to have ABT or for whom it is contraindicated. STUDY FUNDING/COMPETING INTEREST(S) Funding for the EDELWEISS 3 study was provided by ObsEva (Geneva, Switzerland). Analysis of data and manuscript writing were partially supported by ObsEva (Geneva, Switzerland), Theramex (London, UK) and Kissei (Japan) and grant 5/4/150/5 was awarded to M.-M.D. by FNRS. J.D. was a member of the scientific advisory board of ObsEva until August 2022, a member of the scientific advisory board of PregLem, and received personal fees from Gedeon Richter, ObsEva and Theramex. J.D. received consulting fees, speakers' fees, and travel support from Gedeon Richter, Obseva and Theramex, which was paid to their institution. C.B. has received fees from Theramex, Gedeon Richter, and Myovant, and travel support from Gedeon Richter—all funds went to the University of Oxford. He was a member of the data monitoring board supervising the current study, and served at an advisory board for endometriosis studies of Myovant. H.T. has received grants from Abbvie and was past president of ASRM. F.C.H. has received fees from Gedeon Richter and Theramex. O.D. received fees for lectures from Gedeon Richter and ObsEva and research grants for clinical studies from Preglem and ObsEva independent from the current study. A.H. has received grants from NIHR, UKRI, CSO, Wellbeing of Women, and Roche Diagnostics; he has received fees from Theramex. A.H.'s institution has received honoraria for consultancy from Roche Diagnostics, Gesynta, and Joii. M.P. has nothing to declare. F.P. has received fees from Theramex. S.P.R. has been a member of the scientific advisory board of Gedeon Richter and received fees from Gedeon Richter. A.P. and M.B. are employees of Theramex. E.B. was an employee of ObsEva, sponsor chair of the data monitoring board supervising the current study, and has been working as a consultant for Theramex since December 2022; she owns stock options in ObsEva. M.-M.D. has received fees and travel support from Gedeon Richter and Theramex. TRIAL REGISTRATION NUMBER NCT 03992846. TRIAL REGISTRATION DATE 20 June 2019. DATE OF FIRST PATIENT'S ENROLLMENT 13 June 2019. [ABSTRACT FROM AUTHOR]

Compensation and benefit practices are mainly considered as instruments to align employee behaviour to an organization's strategic goals, such as economic outcomes. Going beyond this economic focus, this study examines whether and how employee financial participation, may drive corporate sustainability performance (CSP; i.e. social and environmental performance). We investigate the relationship between employee share ownership, stock option and profit‐sharing plans, on the one hand, and CSP, on the other hand. In addition, we investigate the relationship between narrow‐based employee share ownership plans (only eligible for top management) and broad‐based employee share ownership plans (all employees eligible), on the one side, and CSP, on the other side. Using a unique European panel dataset, the results indicate that companies with (broad‐based) employee share ownership plans portray higher CSP, while companies with profit‐sharing plans exhibit lower CSP when there is no share ownership plan present. Also, the positive effect of broad‐based employee share ownership plans on CSP is magnified when the employees own a larger stake in the company. The results indicate that employee share ownership increases stakeholder orientation, strengthening the mutual interests of the organization and employees to long‐term investments in terms of CSP, at the same time broadening their orientation to long‐term external stakeholders' interests. [ABSTRACT FROM AUTHOR]

Corporate groups with listed subsidiaries are common around the world, despite the risks they pose to minority shareholders. Shaping a firm as a web of formally independent, minority-co-owned legal entities facilitates controllers' diversion of corporate wealth (tunnelling) via intragroup transactions and other nontransactional techniques. This Article problematizes the conventional view of groups as tunnelling-facilitating infrastructures by arguing that organizing as a group with listed subsidiaries (a minority co-owned group) may create value for all shareholders. Organizing as a minority co-owned group may increase transparency, improve performance thanks to the possibility of using stock options for subsidiaries' managers, allow for the circumvention of inefficient restrictions to dual-class shares, facilitate cross-border acquisitions, and be a second-best solution in the presence of path dependence issues preventing firms from moving from concentrated to dispersed ownership. If these are the economic rationales for having minority co-owned groups, how should the latter be regulated? In continental Europe special corporate law rules centred on a relaxation of directors' fiduciary duties within minority co-owned groups, with a view to facilitating intragroup transactions, are increasingly popular among academics and policymakers. These rules, in turn, are bound to blur the separation between the minority co-owned listed entity as an independently managed firm and other members of the corporate group. However, because the rationales for minority co-owned groups presuppose the opposite, namely a clear and transparent separation between the minority co-owned listed entity and the group, our conclusion is that stringent self-dealing rules (or at least no less stringent rules than those established for conflicted transactions other than intragroup transactions) are required for minority co-owned groups to create value for all shareholders rather than merely facilitate tunnelling. [ABSTRACT FROM AUTHOR]

We examine the relation between excess corporate cash holdings and equity option market liquidity from January 3, 2005 to December 31, 2019. We show that the level of cash reserve in excess of what can be captured by firm characteristics significantly explains stock option liquidity. Trading volume and option open interest increase in companies with a higher magnitude of excess cash, whereas the bid–ask spreads of stock options decline in excess cash. Our findings confirm the theoretical prediction that excess cash improves option market liquidity as it reduces adverse selection problems caused by uncertainty in firm valuations. This relation remains more pronounced with put options, out‐of‐the‐money contracts, and short‐maturity contracts. In addition, excess cash has a stronger impact on option liquidity within firms that have a greater degree of informed trading and during high‐volatility periods in financial markets. Our results show that when uncertainty about firm prospects rises, excess cash becomes more valuable and affects option market liquidity. [ABSTRACT FROM AUTHOR]

Previous studies document that investing in research and development is a key factor to keep firm survive in the long-run. This study instead focuses on the relationship between managerial role and R&D decisions. Specifically, we investigate whether more talented managers facilitate firms' R&D investment. Using the MA-score as a proxy for managerial ability, we find that more able managers increase R&D spending. Furthermore, the results show that more talented managers decide to invest more in R&D investment depending on several conditions, such as whether firms are financially unconstrained or in non-crisis period. Other conditions include whether firms are facing lower default probability, in competitive industries, and with some CEOs' characteristics, such as male, young age, higher granted stock option and higher salary. [ABSTRACT FROM AUTHOR]

For stock and index options in the United States, OptionMetrics records prices at 3:59 p.m., not 4:00 p.m. as assumed in previous literature. The resulting 1‐min time discrepancy with closing share prices creates artificial variability in implied volatility spreads and strongly affects market‐wide spreads. It leads to particularly large distortions at the onset of the COVID‐19 pandemic. For index options in Europe, OptionMetrics data show large deviations from put‐call parity even though the original option prices match the parity exactly. Finally, the implied volatilities of stock options in Europe show clusters of exceptional deviations due to incorrect dividend information. [ABSTRACT FROM AUTHOR]

Purpose: Recent studies suggested the ratio of option to stock volume reflected the private information. Informed traders were drawn to the options market for its leverage effect and relatively low transaction costs. Informed traders use different intervals of option moneyness to execute their strategies. The question is which types of option moneyness were traded by informed traders and what information was reflected in the market. In this study, the authors focused on this question and constructed a method for capturing the activity of informed traders in the options and stock markets. Design/methodology/approach: The authors constructed the daily measure, moneyness option trading volume to stock trading volume ratio (MOS), to capture the activity of informed traders in the market. The authors formed quintile portfolios sorted with respect to the moneyness option to stock trading volume ratio and provided the capital asset pricing model and Fama–French five-factor alphas. To determine whether MOS had predictive ability on future stock returns after controlling for company characteristic effects, the authors formed double-sorted portfolios and performed Fama–Macbeth regressions. Findings: The authors found that the firms in the lowest moneyness option trading volume to stock trading volume ratio for put quintile outperform the highest quintile by 0.698% per week (approximately 36% per year). The firms in the highest moneyness option trading volume to stock trading volume ratio for call quintile outperform the lowest quintile by 0.575% per week (approximately 30% per year). Originality/value: The authors first propose the measures, moneyness option trading volume to stock trading volume ratio, that combined with the trading volume and option moneyness. The authors provide evidence that the measures have the predictive ability to the future stock returns. [ABSTRACT FROM AUTHOR]

A major aspiration of investors is to better forecast stock performance. Interestingly, emerging "neuroforecasting" research suggests that brain activity associated with anticipatory reward relates to market behavior and population-wide preferences, including stock price dynamics. In this study, we extend these findings to professional investors processing comprehensive real-world information on stock investment options while making predictions of long-term stock performance. Using functional MRI, we sampled investors' neural responses to investment cases and assessed whether these responses relate to future performance on the stock market. We found that our sample of investors could not successfully predict future market performance of the investment cases, confirming that stated preferences do not predict the market. Stock metrics of the investment cases were not predictive of future stock performance either. However, as investors processed case information, nucleus accumbens (NAcc) activity was higher for investment cases that ended up overperforming in the market. These findings remained robust, even when controlling for stock metrics and investors' predictions made in the scanner. Cross-validated prediction analysis indicated that NAcc activity could significantly predict future stock performance out-of-sample above chance. Our findings resonate with recent neuroforecasting studies and suggest that brain activity of professional investors may help in forecasting future stock performance. [ABSTRACT FROM AUTHOR]

Copyright of FinanzRundschau is the property of De Gruyter and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of FinanzRundschau is the property of De Gruyter and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Knock-in options are a type of barrier option that become active when the value of the underlying asset exceeds a predetermined target. This paper investigates knock-in options based on the mean-reverting stock model within an uncertain environment where the interest rate is dynamic and the stock price follows a geometric process. We subsequently provide the price formulas for the European up-and-in call option and European down-and-in put option. Additionally, we apply real data from the financial market and employ moments estimation to derive the optimal parameters of the stock model under bullish and bearish conditions, respectively. Hypothesis testing is subsequently utilized to assess the fitting effect between the model and data. Finally, the numerical experiments are set to verify the validity of the formulas by observing the influence of parameters on the option price. [ABSTRACT FROM AUTHOR]

The martingale theory of bubbles enables testing for asset price bubbles by analyzing option prices. As recently shown by Piiroinen et al. (Asset price bubbles: an option-based indicator, 2018), the SABR model is a strict local martingale when its parameterization implies a positive correlation between stock and option prices. We operationalize this theoretical result and analyze stock price bubbles in 2576 stocks over 26 years. Martingale defect conditions are absorbed quickly by options markets, but identify high proportions in significant and permanent changes in distribution of price returns, option trading activity, short interest in the underlying, and institutional ownership. These results confirm many common assumptions about stock price bubbles. These bubbles are temporally clustered, and tend to occur in periods of positive market development. Martingale defects are rare in market corrections, which indicates that they are a result of overoptimistic speculation. [ABSTRACT FROM AUTHOR]

Research Summary: Coordination challenges generate uncertainties in ecosystems. Past research suggests that standardization mitigates these challenges, reducing ecosystem‐level uncertainty. But how does it affect firm‐level uncertainty over value‐appropriation? We examine heterogeneity in the latter effect. Using 1996–2010 data on standard‐setting in Information and Communications Technology (ICT) ecosystems and a firm‐level uncertainty measure based on stock option implied volatility, we demonstrate that while standardization reduces uncertainty for firms that own part of the standardized components, it heightens uncertainty for firms that do not, especially when they face strong rivals in complementary technologies or have fewer complementary technologies or production assets themselves. Findings stress that coordination tools enhancing ecosystem‐level value‐creation can end up hurting firm‐level value‐appropriation and worsen uncertainty for some firms in the ecosystem that the tools are meant to help. Managerial Summary: In an ecosystem, a firm faces two types of uncertainty—ecosystem‐level uncertainty over how to coordinate with others on developing interoperable parts, and firm‐level uncertainty over whether it can occupy a viable position to capture value. Standardization, a commonly touted solution, reduces the former but not necessarily the latter. Using 1996–2010 data on standard setting in ICT ecosystems and stock option implied volatility, we show that for non‐standard‐owner firms, standardization in fact worsens the latter, especially when they face strong rivals or lack complementary technologies or production assets in areas complementary to the standard. Thus, tools like standardization meant to solve ecosystem‐level coordination problems can end up raising more doubts on firms' ability to capture value and discouraging firms from participating instead of promoting ecosystem growth. [ABSTRACT FROM AUTHOR]

We provide new evidence on how performance-based compensation plans affect CEO decision-making, especially risk-taking. Our main finding is that relative performance evaluation (RPE) plans provide incentives for CEOs to make decisions that generate more idiosyncratic performance outcomes; absolute performance evaluation (APE) plans do not. After switches from APE to RPE, the correlation between firm stock return and industry index return falls and firm idiosyncratic risk increases. Further, switches to RPE are followed by larger deviations in financial, investment, and operating policies from industry norms (i.e., more idiosyncratic strategies). All results are opposite for switches to APE. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)