Executives of many publicly held firms agree to compensation packages that create immense exposure to their employer's stock. Corporate boards, aspiring to motivate executives to make value-maximizing decisions, often tie an executive's earnings to stock price performance through stock or option...

Modern portfolio theory suggests that undiversified executives would choose to diversify their significant holdings of the firm's stock if the opportunity was available. Recent work suggests that managerial hedging is more prevalent than in years past as more innovative hedging instruments have...