Using Options to Measure the Full Value-Effect of an Event: Application to Obamacare
69 Pages Posted: 5 Sep 2013 Last revised: 8 Jul 2015
Date Written: August 1, 2013
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