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Malmendier & Tate CEO Overconfidence (view source)
Revision as of 18:20, 7 October 2016
, 18:20, 7 October 2016no edit summary
CEOs who “habitually” exercise options late.
== Our Malmendier type measure ==
We will come up with a measure to rank all the CEOs based on their option exercise behavior. This measure should first replicate some of the features of the overconfidence measure suggested by Malmendier and Tate. It should also exhibit sufficient variation in our sample of CEOs. After we have successfully ranked CEOs, we simply identify the top x percentile as overconfident.
The following annually recorded variable will be part of our measure:
Estimated value of in-the-money unexercised exercisable options($) VUE
Estimated value of in-the-money unexercised unexercisable options($) VUU
Value realized on option exercise($) VE
For each period <math> t </math>, let <math> OC_t^i = \frac{VE}{VE + VUE}</math> to be the preliminary measure of overconfidence of CEO <math> i </math> in period <math>t </math>. I was also wondering if there would be any justification for including the variable VUU in the denominator.
Note that for each CEO we'd have multiple observations for different time periods. Thus, let the <math>OC^i </math> to be the mean of all the observations for CEO <math> i </math>
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