Dear all,

For my master in Financial Economics, I apply a certain model of one paper to another. The first paper is from Kahle (2002) and is called "When a buyback isn’t a buyback:
Open market repurchases and employee options". It looks at the relationship between option grants and share buybacks, but encounters a lot of Endogeneity problems. The second paper is by Shue and Townsend (2018) and is called "HOW DO QUASI-RANDOM OPTION GRANTS AFFECT CEO RISK-TAKING?". This paper looks at the relationship between option grants and CEO risk-taking, but deals with Endogeneity through using an instrumental variable. The IV they used is a dummy that takes value 1 if option grants are cyclical: the value of the option grants is about the same for 2 consecutive years (3% margin). For the given assignment, we have to apply these cyclical option grants to share buybacks, but we have no idea how to create a dummy that takes value 1 if option grants have the same value for consecutive years. I was hoping some of you could lend a hand.

Thanks in Advance!

Regards,

Bas