In order to create an Android Wear emulator you need to follow the instructions below:
If your version of Android SDK Tools is lower than 22.6, you must update
Under Android 4.4.2, select Android Wear ARM EABI v7a System Image and install it.
Under Extras, ensure that you have the latest version of the Android Support Library. If an update is available, select Android Support Library. If you're using Android Studio, also select Android Support Repository.
Below is the snapshot of what it should look like:
Then you must check the following in order to create a Wearable AVD:
For the Device, select Android Wear Square or Android Wear Round.
For the Target, select Android 4.4.2 - API Level 19 (or higher, otherwise corresponding system image will not show up.).
For the CPU/ABI, select Android Wear ARM (armeabi-v7a).
For the Skin, select AndroidWearSquare or AndroidWearRound.
Leave all other options set to their defaults and click OK.
Then you are good to go. For more information you can always refer to the developer site.