Using Options to Measure the Full Value-Effect of an Event: Application to Obamacare

Borochin, Paul; Golec, Joseph H.

doi:10.2139/ssrn.2320297

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Using Options to Measure the Full Value-Effect of an Event: Application to Obamacare

Journal of Financial Economics (JFE), Forthcoming

69 Pages Posted: 5 Sep 2013 Last revised: 8 Jul 2015

See all articles by Paul Borochin

Paul Borochin

University of Florida - Department of Finance, Insurance and Real Estate

Joseph H. Golec

University of Connecticut - Department of Finance

Date Written: August 1, 2013

Abstract

Many event studies only measure a fraction of an event's full value effect because they do not adjust for market anticipation of the event. We present a method based on stock and options prices to measure the full effect that accounts for market anticipation. We apply the method to the passage of Obamacare. Our method estimates the full value effect of Obamacare on the healthcare sector as $55 billion, compared to $16 billion when market anticipation is ignored. The method is applicable to most major events because it only requires that some affected firms have traded stock options.

Keywords: Event study, options, valuation, healthcare reform

JEL Classification: G14, G38, I13

Suggested Citation: Suggested Citation

Borochin, Paul and Golec, Joseph, Using Options to Measure the Full Value-Effect of an Event: Application to Obamacare (August 1, 2013). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2320297 or http://dx.doi.org/10.2139/ssrn.2320297