A threshold uncertainty investment model for the Netherlands

Hong Bo (), Jan Jacobs and Elmer Sterken

Applied Financial Economics, 2006, vol. 16, issue 9, 665-673

Abstract: This paper presents a threshold uncertainty investment model for Dutch firms. The proposed uncertainty measure is constructed as an empirical proxy for the standard real options multiple. The uncertainty measure serves as the threshold variable in estimating a piecewise linear accelerator investment model using Hansen's panel data threshold estimation procedure. It is found that in the regime of low uncertainty in which the empirical proxy for the real options multiple is below the estimated threshold, the estimated accelerator effect on investment is higher than that in the regime of high uncertainty. The result indicates that firms delay investment due to positive values of waiting.

Date: 2006
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DOI: 10.1080/09603100600685002

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