By the end of the 1990s, the aggregate price pattern had become so pronounced that I thought there was more to the story than just grants being timed before corporate insiders predicted stock prices to increase.
This made me think about the possibility that some of the grants had been backdated.
Companies would simply wait for a period in which the company's stock price fell to a low and then moved higher within a two-month period.
The company would then grant the option but date it at or near its lowest point.
Backdating does not violate shareholder-approved option plans.
Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.In a study that I started in 2003 and disseminated in the first half of 2004 and that was published in Management Science in May 2005 (available at I found that stock prices also tend to decrease before the grants.Furthermore, the pre-and post-grant price pattern has intensified over time (see graph below).This is the granted option that would be reported to the SEC.The act of options backdating has become much more difficult as companies are now required to report the granting of options to the SEC within two business days.