The effect of oil price volatility on strategic investment

Irene Henriques and Perry Sadorsky

Energy Economics, 2011, vol. 33, issue 1, 79-87

Abstract: In this paper, we investigate how oil price volatility affects the strategic investment decisions of a large panel of US firms. This paper uses key insights from the real options literature to develop a model of a company's strategic investment and shows how changes in oil price volatility can impact strategic investment decisions. The model is estimated using recently developed generalized method of moment estimation techniques for panel data sets. Empirical results are presented to show that there is a U shaped relationship between oil price volatility and firm investment. This is consistent with the predictions from the strategic growth options literature. The results should be useful to decision makers, investors, managers, policy makers and others who need to make strategic investment decisions in an uncertain world.

Keywords: Oil; prices; Real; options; Strategic; investments; Volatility (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (129)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:33:y:2011:i:1:p:79-87

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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