Cashing In on Managerial Malfeasance: A Trading Strategy around Forecasted Executive Stock Option Grants

Abstract

This study examined the profitability of a trading strategy that exploits the manipulation of stock prices around the grant date of executive stock options. The strategy generates annualized abnormal returns of 1.4–5.2 percent net of transaction costs and is relatively unaffected by the Sarbanes–Oxley Act of 2002.