Searching for clues to predict your company’s near-term stock price movement? Consider tracking the stock option exercises of lower-level employees. A new study suggests that in the aggregate, low-rung employees foretell accurate stock price movement through these decisions. It takes six months for these junior-level predictions to play out, but researchers say option exercises increase before a stock price downturn and decrease prior to a stock price rise.
Furthermore, the information does not have to be reported to the market, notes Steven J. Huddart of Pennsylvania State University’s Smeal College of Business, who penned the research with Mark Lang of the University of North Carolina. Huddart also says that to extrapolate the most useful information, companies should avoid placing exercise restrictions on lower-level employees, thereby allowing workers to act freely on the generally available inside skinny.
Does using the inside information as a crystal ball invite regulation? Not according to the Securities and Exchange Commission. The agency says it isn’t considering any type of disclosure rule that relates to the corporate proletariat. — Marie Leone