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'Time to build, option value and investment decisions': a comment
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UNSPECIFIED (2000) 'Time to build, option value and investment decisions': a comment. JOURNAL OF FINANCIAL ECONOMICS, 56 (2). pp. 325-332. ISSN 0304-405X.
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Abstract
We correct the analysis of the model of time to build in Majd and Pindyck (1987 Journal of Financial Economics 18, 7-27) for the omission of an essential optimality condition, Our analysis reveals an additional insight: long times to build reduce the effects of increased project value volatility (i,e., higher investment thresholds) in comparison to standard real option models of investment under uncertainty, where investment is instantaneous. Thus, a 'naive' NPV rule can sometimes be an appropriate initial guide to investment. (C) 2000 Elsevier Science S.A. All rights reserved. JEL classification: C63; D92.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
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| Journal or Publication Title: | JOURNAL OF FINANCIAL ECONOMICS | ||||
| Publisher: | ELSEVIER SCIENCE SA | ||||
| ISSN: | 0304-405X | ||||
| Official Date: | May 2000 | ||||
| Dates: |
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| Volume: | 56 | ||||
| Number: | 2 | ||||
| Number of Pages: | 8 | ||||
| Page Range: | pp. 325-332 | ||||
| Publication Status: | Published |
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