Contrasts Between Classes of Assets in Fixed Investment Equations as a Way of Testing Real Option Theory

Ciaran Driver, Paul Temple and Giovanni Urga

No 805, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: This 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.

Keywords: Investment; Irreversibility; Real Options; Uncertainty; Panel Data (search for similar items in EconPapers)
JEL-codes: C23 E22 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.som.surrey.ac.uk/2005/DP08-05.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0805

Access Statistics for this paper

More papers in School of Economics Discussion Papers from School of Economics, University of Surrey Contact information at EDIRC.
Bibliographic data for series maintained by Ioannis Lazopoulos ().