Contrasts Between Classes of Assets in Fixed Investment Equations as a Way of Testing Real Option Theory
AbstractThis paper tests the power of real options theory to explain investment under uncertainty, exploiting differences in the degree of irreversibility between machinery and buildings. It reports estimates of investment equations for each asset class using a large sample of UK manufacturing industries, with results that are consistent with the predictions of real options theory. Additionally, using a specially constructed industryspecific measure of irreversibility for machinery investment, the paper provides further confirmation of the empirical relevance of real options.
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Bibliographic InfoPaper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0805.
Length: 35 pages
Date of creation: May 2005
Date of revision:
Investment; Irreversibility; Real Options; Uncertainty; Panel Data;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
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