Booms, recessions and financial turmoil: A fresh look at investment decisions under cyclical uncertainty

Link:
Autor/in:
Erscheinungsjahr:
2010
Medientyp:
Text
Schlagworte:
  • Real options
  • Investments
  • Cash flows
  • Models
  • Risks
  • Finance
  • Real options
  • Investments
  • Cash flows
  • Models
  • Risks
  • Finance
Beschreibung:
  • The paper studies the interaction between cyclical uncertainty and investment in a stochastic real option framework where demand shifts stochastically between three different states, each with different rates of drift and volatility. In our setting, the shifts are governed by a three-state Markov switching model with constant transition probabilities. The magnitude of the link between cyclical uncertainty and investment is quantified using simulations of the model. The chief implication of the model is that recessions and financial turmoil are important catalysts for waiting. In other words, our model shows that macroeconomic risk acts as an important deterrent to investments. © 2010 The Authors. Journal compilation © 2010 Scottish Economic Society.
Lizenz:
  • info:eu-repo/semantics/restrictedAccess
Quellsystem:
Forschungsinformationssystem der UHH
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Quelldatensatz
oai:www.edit.fis.uni-hamburg.de:publications/808d7000-4c74-430c-85d8-239544e47306