Testing Real Options Theory Using Data on Capital Adequacy

Ciaran Driver and Katsushi Imai (katsushi.imai@rhul.ac.uk)
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Ciaran Driver and Katsushi Imai: Department of Economics, Royal Holloway, University of London
Authors registered in the RePEc Author Service: Katsushi S. Imai and Ciaran Driver

No 03/3, Royal Holloway, University of London: Discussion Papers in Economics from Department of Economics, Royal Holloway University of London

Abstract: This paper uses unique survey-based data that record the extent of positive and negative disequibrium in capital stock at industry level. We observe movement in this disequilibrium and model it to take account of long-run plans, short-term revisions to expectations, and the influence of uncertainty on adjustment. We find that increased uncertainty slows the adjustment of fixed capital towards equilibrium levels, in line with the predictions of real options theory and partial irreversibility models.

Keywords: Investment; Industry; Irreversibility; Real Options; Uncertainty (search for similar items in EconPapers)
JEL-codes: C23 E22 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2003-12, Revised 2003-12
New Economics Papers: this item is included in nep-fin
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