The Investment Opportunity Set And Its Proxy Variables
AbstractWe use a real options approach to evaluate the performance of several proxy variables for a firm's investment opportunity set. The results show that, on a relative scale, the market-to-book assets ratio has the highest information content with respect to investment opportunities. Although both the market-to-book equity and the earnings-price ratios are related to investment opportunities, they do not contain information that is not already contained in the market-to-book assets ratio. Consistent with this finding, a common factor constructed from several proxy variables does not improve the performance of the market-to-book assets ratio. 2008 The Southern Finance Association and the Southwestern Finance Association.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 31 (2008)
Issue (Month): 1 ()
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