The Market Value of the Vote: A Contingent Claims Approach
50 Pages Posted: 8 Nov 2008 Last revised: 11 Mar 2010
Date Written: January 1, 2008
The paper presents a new methodology to estimate the market value of the right to vote that is embedded in common stocks. The difference in the price of the stock and the synthetic stock (constructed with options) quantifies the value of the right to vote during the expected life of the synthetic stock. Consistent with the theory we find that our measure increases with the expected life of the synthetic stock. We quantify the value of the right to vote during the next year at 1.64%. As expected, the value of the vote increases around special meetings and around M&A events. The evidence presented has implications for the option pricing literature as well. We point out that early exercise of Call options can be optimal even in the absence of dividends on the underlying security.
Keywords: Voting rights, Put-Call parity, Options, Vote trading
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