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State pricing, effectively complete markets, and corporate finance

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  • Grinblatt, Mark
  • Wan, Kam-Ming

Abstract

Event study, panel regression, and difference-in-difference techniques are among the most prominent research methodologies in corporate finance. However, these techniques are inappropriate if corporate events are anticipated to some degree, as most events are. This paper proposes options as an additional model-free source of information to identify the likelihood and impact of corporate events. We show how to quantify event impact in a simple example and assert that few restrictions on the state space are required for the approach to work in more complex settings.

Suggested Citation

  • Grinblatt, Mark & Wan, Kam-Ming, 2020. "State pricing, effectively complete markets, and corporate finance," Journal of Corporate Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:corfin:v:60:y:2020:i:c:s0929119919306613
    DOI: 10.1016/j.jcorpfin.2019.101542
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    More about this item

    Keywords

    Event study; Options; State prices; Difference-in-difference method; Identification;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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