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On the definition of the investment-uncertainty relationship

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  • Gutiérrez, Óscar

Abstract

This short paper provides a rigorous definition for the assertion “an increase of uncertainty harms investment” within the real-options framework. In most cases, the effect of uncertainty on investment depends on the time-horizon considered. For typical parameter configurations, more uncertainty favors investment in the short-run.

Suggested Citation

  • Gutiérrez, Óscar, 2020. "On the definition of the investment-uncertainty relationship," Journal of Economics and Business, Elsevier, vol. 112(C).
    • Handle: RePEc:eee:jebusi:v:112:y:2020:i:c:s0148619519304138
    DOI: 10.1016/j.jeconbus.2020.105934
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    References listed on IDEAS

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    More about this item

    Keywords

    Real-options; Uncertainty/Investment relationship; Distribution function; First-passage time of a Brownian motion;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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