Asymmetry and uncertainty in capital formation: An application to oil investment
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.
(This abstract was borrowed from another version of this item.)
|Date of creation:||01 Jun 2008|
|Date of revision:|
|Contact details of provider:|| Postal: University of Stavanger, NO-4036 Stavanger, Norway|
Web page: http://www.uis.no/research/economics_and_finance
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Van Reenen & Nick Bloom & Steve Bond, 2006.
"Uncertainty and investment dynamics,"
LSE Research Online Documents on Economics
2645, London School of Economics and Political Science, LSE Library.
- Nick Bloom & John Van Reenen & Stephen Bond, 2006. "Uncertainty and Investment Dynamics," NBER Working Papers 12383, National Bureau of Economic Research, Inc.
- Nick Bloom & Stephen Bond & John Van Reenen, 2006. "Uncertainty and Investment Dynamics," CEP Discussion Papers dp0739, Centre for Economic Performance, LSE.
- Ulrike Malmendier & Geoffrey Tate, 2005.
"CEO Overconfidence and Corporate Investment,"
Journal of Finance,
American Finance Association, vol. 60(6), pages 2661-2700, December.
- 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.
- Dahl, Carol & Duggan, Thomas E., 1998. "Survey of price elasticities from economic exploration models of US oil and gas supply," Journal of Energy Finance & Development, Elsevier, vol. 3(2), pages 129-169.
- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
- Favero, C.A. & Pesaran, M.H. & Sharma, S., 1992. "Uncertainty and Irreversible Investment: An Empirical Analysis of Development of Oilfields on the UKCS," Cambridge Working Papers in Economics 9210, Faculty of Economics, University of Cambridge.
- Meyer, Jochen & von Cramon-Taubadel, Stephan, 2002.
"Asymmetric Price Transmission: A Survey,"
2002 International Congress, August 28-31, 2002, Zaragoza, Spain
24822, European Association of Agricultural Economists.
- Ekern, Steinar, 1988. "An option pricing approach to evaluating petroleum projects," Energy Economics, Elsevier, vol. 10(2), pages 91-99, April.
- Mohn, Klaus & Osmundsen, Petter, 2008. "Exploration economics in a regulated petroleum province: The case of the Norwegian Continental Shelf," Energy Economics, Elsevier, vol. 30(2), pages 303-320, March.
- Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
- Malcolm Baker & Richard S. Ruback & Jeffrey Wurgler, 2004. "Behavioral Corporate Finance: A Survey," NBER Working Papers 10863, National Bureau of Economic Research, Inc.
- Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000.
" What Do We Know about Investment under Uncertainty?,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 14(2), pages 119-53, April.
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, School of Economics, University of Kent.
- Grasso, Margherita & Manera, Matteo, 2007.
"Asymmetric error correction models for the oil-gasoline price relationship,"
Elsevier, vol. 35(1), pages 156-177, January.
- Matteo Manera & Margherita Grasso, 2005. "Asymmetric Error Correction Models for the Oil-Gasoline Price Relationship," Working Papers 2005.75, Fondazione Eni Enrico Mattei.
- Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 607-29, Special I.
- Iledare, Omowumi O. & Pulsipher, Allan G., 1999. "Sources of change in petroleum drilling productivity in onshore Louisiana in the US, 1977-1994," Energy Economics, Elsevier, vol. 21(3), pages 261-271, June.
- Michael R. Walls & James S. Dyer, 1996. "Risk Propensity and Firm Performance: A Study of the Petroleum Exploration Industry," Management Science, INFORMS, vol. 42(7), pages 1004-1021, July.
- Favero, Carlo A. & Pesaran, M. Hashem, 1994.
"Oil investment in the North Sea,"
Elsevier, vol. 11(3), pages 308-329, July.
- Ramey, Garey & Ramey, Valerie A, 1995.
"Cross-Country Evidence on the Link between Volatility and Growth,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1138-51, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Cukierman, Alex, 1980. "The Effects of Uncertainty on Investment under Risk Neutrality with Endogenous Information," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 462-75, June.
- C. Bram Cadsby & Elizabeth Maynes, 1998. "Laboratory experiments in corporate and investment finance: a survey," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 277-298.
- Farzin, Y. H., 2001. "The impact of oil price on additions to US proven reserves," Resource and Energy Economics, Elsevier, vol. 23(3), pages 271-292, July.
- Hurn, A S & Wright, Robert E, 1994. "Geology or Economics? Testing Models of Irreversible Investment Using North Sea Oil Data," Economic Journal, Royal Economic Society, vol. 104(423), pages 363-71, March.
- James L. Paddock & Daniel R. Siegel & James L. Smith, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 479-508.
- Ringlund, Guro Bornes & Rosendahl, Knut Einar & Skjerpen, Terje, 2008.
"Does oilrig activity react to oil price changes An empirical investigation,"
Elsevier, vol. 30(2), pages 371-396, March.
- Guro Børnes Ringlund & Knut Einar Rosendahl & Terje Skjerpen, 2004. "Does oilrig activity react to oil price changes? An empirical investigation," Discussion Papers 372, Statistics Norway, Research Department.
- Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
- Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
- Osmundsen, Petter & Mohn, Klaus & Misund, Bard & Asche, Frank, 2007. "Is oil supply choked by financial market pressures?," Energy Policy, Elsevier, vol. 35(1), pages 467-474, January.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
When requesting a correction, please mention this item's handle: RePEc:hhs:stavef:2009_013. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernt Arne Odegaard)
If references are entirely missing, you can add them using this form.