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Contrasts between classes of assets in fixed investment panel equations as a way of testing real option theory

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Author Info

  • Ciaran Driver

    ()
    (Imperial College Management School)

  • Katsushi Imai

    (Imperial College Management School)

  • Paul Temple

    (Department of Economics, University of Surrey)

  • Giovanni Urga

    (City University Business School)

Abstract

This paper reports estimation of investment equations for two classes of fixed assets: plant & machinery and building for a large sample of UK manufacturing industries. It exploits the different degree of irreversibility that characterises these assets to test the power of real options theory to explain investment under uncertainty. Additionally, the paper uses a specially constructed industry-specific measure of irreversibility for plant and machinery investment to test for real options effects within that class of investment.

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File URL: http://econpapers.repec.org/cpd/2002/81_Driver.pdf
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Bibliographic Info

Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number B3-3.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:b3-3

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Related research

Keywords: Investment; Industry; Irreversibility; Real Options; Uncertainty;

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  1. Ferderer, J Peter, 1993. "The Impact of Uncertainty on Aggregate Investment Spending: An Empirical Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 30-48, February.
  2. Russell Davidson & James G. MacKinnon, 1981. "Tests for Model Specification in the Presence of Alternative Hypotheses: Some Further Results," Working Papers 430, Queen's University, Department of Economics.
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Cited by:
  1. Konstantinos Drakos, 2006. "A note on uncertainty and investment across the spectrum of irreversibility," Applied Economics Letters, Taylor & Francis Journals, vol. 13(13), pages 873-876.

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