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Lie: Spring-loading Differs from Backdating

Want to profit with chief executive officers? Then buy shares in their companies as soon as the CEOs are granted stock options. An investor who purchased shares of companies, including Advanced Micro Devices Inc. and Yahoo! Inc., after they disclosed options grants and sold the stock three months later could have beaten stock market benchmarks by 5.2 percentage points annually from mid-2002 through 2005, data compiled by Bloomberg show. Holding until 180 days after the grant beat the indexes by an average 4.2 percentage points, according to the study of 4,290 grants made by 1,700 companies. "If these grants are a heads-up that a stock will rise, then investors should pay attention,'' said Byron Wien, chief investment strategist at Pequot Capital Management in New York, which invests about $7 billion in assets. ``We're all out to make a buck in the market.'' The outsized returns were led by gains in companies where CEOs were awarded options when stock prices were at their lows, the study found. At least 64 companies are facing investigations into whether they manipulated option awards to inflate their value. Investigators also are looking into ``spring-loading,'' in which companies grant options before the release of good news. But ERIK LIE, the University of Iowa professor whose research helped prompt the current options probes, said in an interview that spring-loading probably happens less than backdating and succeeds infrequently because unexpected events can cancel out good news.


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