Stocking up: Executive optimism, option exercise, and share retention ⁎

We show that an executive is optimistic about her company׳s prospects if and only if she retains some of the shares received whenever she exercises company stock options. Empirically, an indicator of optimism based on this idea matches the expected relations between optimism and corporate decision-making better than commonly used indicators based on the timing of option exercise. This makes sense, as our model of an executive׳s optimal option exercise and portfolio choice demonstrates that the timing of option exercise depends just as much on stock and other executive characteristics as it does on optimism.