The Impact of Risk on the Decision to Exercise an ESO

This paper examines the impact of firms’ risk on executives’ decisions to exercise their executive stock options (ESOs). As the proportion of executives’ remuneration linked to the value of their firm (and therefore shareholder wealth) has increased, so the extent to which these executives hold undiversified personal portfolios has also increased. This lack of personal diversification gives executives a strong incentive to exercise early. It has been shown that this incentive can be sufficiently strong to outweigh the beliefs an executive may have regarding the firm’s valuation. I hypothesise that as the risk of a firm increases, so an ESO exercise is less likely to be induced by an executive’s private information. Consistent with the need to diversify, I find that it is only exercises in low risk firms that precede significantly negative abnormal returns

The Information Contained in The Exercise of Executive Stock Options

This paper investigates the use by insiders of private information in their decision to exercise executive stock options. It is the first to categorise the exercise of an executive stock option by the proportion of stock sold at exercise. Consistent with existing research, exercises overall do not yield subsequent abnormal returns. However, we find a marked and significant difference in subsequent performance between exercises categorised as ‘high’ and ‘low’ sale proportion respectively. Therefore, while the exercise decision may appear uninformed, this study demonstrates that executives do use private information in their exercise and corresponding sale decisions. Further, near-the-money exercises produce negative abnormal returns, consistent with such exercises being relatively expensive. These results need to be reflected in the valuation of executive stock options, and hence the compensation executives derive from them

Executive Stock Option Exercises and the Predictive Ability of Transaction Value

This paper investigates the predictive ability of executives’ stock option exercises by categorising all exercises by the overall value of the transaction. This measure incorporates the cost to the executive of exercising the option, together with the income generated by the associated sale of stock at the time of exercise. As a result, we show that, in contrast to the existing literature, executive stock option exercises do have predictive ability for future stock returns. This is, however, limited to transactions that generate net revenue for the executive, a finding that is the reverse of the evidence relating to standard executive transactions

The Equity Premium

Recent research on the equity risk premium has questioned the ability of historical estimates of the risk premium to provide reliable estimates of the expected risk premium. We calculate the equity risk premium for a number of countries over longer horizons than has been attempted to date. We show that the realised US equity premium is consistent with the premia obtained elsewhere. Furthermore, using well over a century of data, we find that current estimates of the equity premia are close to those observed during the pre-1914 era. This is of particular relevance given the argument that the financial environment during that period bears a closer resemblance to today than the 1914-1945 period, and possibly also the 1945-1971 period. This points to a current equity risk premium that is considerably lower than consensus forecasts (Welch 2001)

Price impact of block trades in the Saudi stock market

This paper examines the price impact of block trades for the 124 companies that comprise all listed firms in the Saudi stock market (SSM). We use high frequency intraday data (one minute intervals) for the period 2005-2008 to provide out of sample evidence of the determinants of price impact. We find an asymmetric price impact of 0.5% for block purchases and -0.38% for block sales. We document a price continuation post block trades and a price reversal after block sales. Sellers of block trades in the Saudi market pay higher liquidity premiums than buyers of block trades. However, on average, the price effect of a block trade is small and short-lived suggesting that resiliency is high in the market. Moreover, we find a direct relationship between the size of the trades and the level of information asymmetry in the market. Despite the structural differences of the SSM, the intraday pattern of price impacts is similar to patterns documented in other markets, namely an inverse J-shaped pattern. Finally, sophisticated traders can gain abnormal profits in the SSM through “free riding”, a trader can benefit from the overreaction before the block trade and price reversal after the block trade

Can market frictions really explain the price impact asymmetry of block trades? Evidence from the Saudi stock market

We empirically examine the price impact of block trades, in the Saudi Stock Market over the time period of 2005-2008. Using a unique dataset of intraday data consisting of 2.3 million block buys and 1.9 million block sales, we find an asymmetry in the price impact of block purchases and sales. The asymmetry persists even when we account for the bidask bias in block trades, which is contrary to the previous literature. Overall, our findings suggest that in an emerging market where institutional trading is relatively scarce, market microstructure cannot explain the asymmetry n the price impact of large trades

Investigation of photoplethysmography and arterial blood oxygen saturation from the ear-canal and the finger under conditions of artificially induced hypothermia

Pulse oximeters relay on the technique of photoplethysmography (PPG) to estimate arterial oxygen saturation (SpO2). In conditions of poor peripheral perfusion such as hypotension, hypothermia, and vasoconstriction, pulse oximeters become inaccurate or provide no reading. This is due to the poor quality of the PPG signals detected at that instance. In order to overcome this problem, the ear canal has been proposed as a alternative measurement site for measuring reliable SpO2. Hence, an ear canal PPG sensor was developed along with a PPG processing system. The performance of the sensor was evaluated by measuring the red and infrared PPGs and SpO2 from 10 healthy volunteers undergoing artificially induced hypothermia. The results from the ear canal sensor were compared with simultaneously acquired results from the finger. Hypothermia was induced by exposing the volunteers to cold temperatures of 10 ± 1°C. The results acquired suggest that the ear canal pulse oximeter endures more in estimating SpO2 values accurately when compared with the more common finger pulse oximeter

Near infrared spectrometric investigation of lactate in a varying pH buffer

Lactic acidosis is commonly observed in various disease states in critical care and can be adopted as a hemodynamic biomarker, as well as a target for therapy. pH is the main biomarker for the diagnosis of acid–base disorders and is currently measured utilizing invasive blood sampling techniques. Therefore, there is a need for a non-invasive and continuous technology for the measurement of pH and lactate levels. In this work, near infrared spectroscopy is explored as a technique for investigating lactic acidosis. In-vitro studies on 20 isotonic phosphate buffer solutions of varying pH with constant lactate concentration (2 mmol/L) were performed. The whole near infrared spectrum (800–2600 nm) was then divided into four parts for analysis: (a) water absorption peaks, (b) 1000–1250 nm, (c) 1700–1760 nm, and (d) 2200–2400 nm. The water absorption peaks showed a linear variation with the changes in pH in the spectra. The range from 1700–1760 nm showed good correlation with calculated values for lactate ionization, with the changes in pH. However, the region from 2200–2400 nm showed a reverse correlation with respect to the concentration changes of lactate and a distinction could be made from pH 6–7 and 7–8. This study successfully identifies wavelengths (1233 nm, 1710 nm, 1750 nm, 2205 nm, 2319 nm, and 2341 nm) which can be directly correlated to lactic acidosis. Knowledge from this study will contribute toward the development of lactate-based pH monitoring optical sensor for critical care

Investigation of Pulse Transit Times utilizing multisite reflectance photoplethysmography under conditions of artificially induced peripheral vasoconstriction

Pulse Transit Time (PTT) is the time it takes for an arterial pulsation to travel from the heart to a peripheral site. In recent times, PTT has been advocated as a marker for assessing increased vascular resistance. However, the reliability of PTT as a marker for cardiovascular risks and its inverse relation to beat-to-beat blood pressure is still being investigated. In order to validate the technique as a reliable marker of vascular resistance, PTT measurements were made using photoplethysmographic (PPG) signals obtained from multiple measurement sites in 12 healthy volunteers undergoing right hand immersion in ice water for 30 secs. PTT measurements were made from the ear canal (EC), the left (LIF) and right index fingers (RIF) using custom made photoplethysmographic probes. Activation of the sympathetic nervous system during the ice water immersion caused an increase in vascular resistance, which is associated with an increase in mean arterial pressure and a decrease in PTT in all measurement sites. However, the change in PTT was much larger in the RIF when compared to the LIF and the EC. This demonstrates the cerebral flow autoregulation and the profound peripheral vasoconstriction seen in the right hand. After the ice immersion period, the mean PTT measured from the EC returned to baseline, whereas the LIF PTTs exceeded baseline values. This is due to the local vasodilation resulted from the activation of a thermoregulatory mechanism

Development of an optical probe to investigate the suitability of measuring photoplethysmographs and blood oxygen saturation from the human auditory canal

Pulse oximetry has become a standard for patient monitoring in the operating room, and the finger is the most common site used for monitoring blood oxygen saturation (SpO2). However, SpO2 measurements made from extremities such as the finger, ear lobe and toes become susceptible to inaccuracies, when patients become hypothermic, hypovolemic and vasoconstrictive. This is due to the week arterial pulsations detected in these conditions. To overcome this limitation, the external auditory canal has been proposed as an alternative monitoring site for estimating SpO2, on the hypothesis that this central site will be better perfused. A dual wavelength optoelectronic sensor along with a processing system was developed to investigate the suitability of measuring photoplethysmographic (PPG) signals and SpO2 values in the human auditory canal. A pilot study was conducted on 12 healthy volunteers to validate the developed sensor. The red and infrared PPG signals obtained from all the volunteers were of very good quality. The SpO2 values recorded from the ear canal were compared with simultaneously acquired data from a commercial finger pulse oximeter. The results show good correlation between the commercial pulse oximeter and the custom made ear canal sensor (r(2) = 0.825)