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Asymmetry and uncertainty in capital formation: An application to oil investment

  • Mohn, Klaus

    ()

    (University of Stavanger)

  • Osmundsen, Petter

    ()

    (University of Stavanger)

Theories of irreversible investment suggest a negative relation between investment and uncertainty, and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital. We propose an econometric modelling approach to estimate and test the key predictions of modern investment theory, including asymmetric dynamics and various uncertainty indicators. Our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment.

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File URL: http://www1.uis.no/ansatt/odegaard/uis_wps_econ_fin/uis_wps_2009_13_mohn_osmundsen.pdf
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Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/13.

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Length: 32 pages
Date of creation: 01 Jun 2008
Date of revision:
Handle: RePEc:hhs:stavef:2009_013
Contact details of provider: Postal:
University of Stavanger, NO-4036 Stavanger, Norway

Web page: http://www.uis.no/research/economics_and_finance

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  26. Serven, Luis, 1997. "Irreversibility, Uncertainty and Private Investment: Analytical Issues and Some Lessons for Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 229-68, Supplemen.
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