scholarly journals Does the Market Correctly Value Investment Options?*

2020 ◽  
Vol 24 (6) ◽  
pp. 1159-1201
Author(s):  
Evgeny Lyandres ◽  
Egor Matveyev ◽  
Alexei Zhdanov
Keyword(s):  
Stock Market ◽  
Real Options ◽  
Equity Markets ◽  
Optimal Investment ◽  
Investment Under Uncertainty ◽  
Innovative Firms ◽  
Public Equity

Abstract This paper shows that the stock market misprices firms’ investment options. We build a real options model of optimal investment under uncertainty to estimate the value of firms’ investment options. We show that firms with valuable investment options have a higher likelihood of being mispriced. Importantly, this mispricing is not one-sided, as such firms are equally likely to be undervalued or overvalued. Our paper adds to the debate on whether public equity markets are myopic and systematically undervalue innovative firms. We show that this is not necessarily the case.

Stock Market Valuation with Real Options:

2002 ◽  
Vol 20 (5) ◽  
pp. 512-526 ◽  
Author(s):  
Adrian Buckley ◽  
Kalun Tse ◽  
Herbert Rijken ◽  
Hans Eijgenhuijsen
Keyword(s):  
Stock Market ◽  
Real Options ◽  
Market Valuation ◽  
Stock Market Valuation

Real options as a component of the market value of stocks: evidence from the Spanish Stock Market

2005 ◽  
Vol 37 (14) ◽  
pp. 1673-1691 ◽  
Author(s):  
Pablo de Andrés-Alonso ◽  
Valentín Azofra-Palenzuela ◽  
Gabriel de la Fuente-Herrero *
Keyword(s):  
Stock Market ◽  
Real Options ◽  
Market Value ◽  
Spanish Stock Market

scholarly journals International portfolio diversification: United States and south Asian equity markets

2014 ◽  
Vol 61 (2) ◽  
pp. 241-252 ◽  
Author(s):  
Rizwan Mushtaq ◽  
Zulfiqar Shah
Keyword(s):  
Stock Market ◽  
South Asian ◽  
Equity Markets ◽  
Equity Market ◽  
Causality Test ◽  
Market Index ◽  
International Portfolio Diversification ◽  
The Us ◽  
Short And Long Term

This paper explores the dynamic liaison between US and three developing South Asian equity markets in short and long term. To gauge the long-term relationship, we applied Johansen co-integration procedure as all the representative indices are found to be non-stationary at level. The findings illustrate that the US equity market index exhibits a reasonably different movement over time in contrast to the three developing equity markets under consideration. However, the Granger-causality test divulge that the direction of causality scamper from US equity market to the three South Asian markets. It further indicates that within the three developing equity markets the direction of causality emanates from Bombay stock market to Karachi and Colombo. Overall, the results of the study suggest that the American investors can get higher returns through international diversification into developing equity markets, while the US stock market would also be a gainful upshot for South Asian investors.

Optimal Fisheries Investment under Uncertainty

1983 ◽  
Vol 40 (12) ◽  
pp. 2080-2091 ◽  
Author(s):  
Anthony T. Charles
Keyword(s):  
Optimal Investment ◽  
Fish Stock ◽  
Investment Strategies ◽  
Economic Optimization ◽  
Stock Management ◽  
Investment Under Uncertainty ◽  
Capital Costs ◽  
Wide Range ◽  
Full Analysis ◽  
Fishing Fleets

A full analysis of optimal fisheries investment strategies must take into account high levels of uncertainty in future fishery returns, as well as irreversibility of investment in specialized, nonmalleable fishing fleets. A stochastic optimization model is analyzed using dynamic programming to determine optimal policy functions for both fleet investment and fish stock management within an uncertain environment. The resulting policies are qualitatively similar to those found in the corresponding deterministic case, but quantitative differences can be substantial. Simulation results show that optimal fleet capacity should be expected to fluctuate over a fairly wide range, induced by stochastic variations in the biomass. However, the performance of a linear-cost risk-neutral fishery is fairly insensitive to variations in investment and escapement policies around their optimum levels, so that economic optimization is "forgiving" within this context. A framework of balancing upside and downside investment risks is used here to explain the roles of several fishery parameters in relation to optimal investment under uncertainty. In particular, the intrinsic growth rate of the resource and the ratio of unit capital costs to unit operating costs are found to be key parameters in determining whether investment should be higher or lower under uncertainty.

In the post-crisis world, did debt and equity markets respond differently to high-tech industries and innovative firms?

2020 ◽  
pp. 026624262094728
Author(s):  
Marc Cowling ◽  
Weixi Liu ◽  
Ning Zhang
Keyword(s):  
Equity Markets ◽  
Point Of View ◽  
Innovative Activity ◽  
Innovation Activity ◽  
High Tech ◽  
High Tech Industry ◽  
General Process ◽  
External Finance ◽  
Innovative Firms ◽  
Industry Sectors

The belief that more general capital constraints are exacerbated and magnified in innovative and technology-based firms has provided justification for policy intervention, across the range of equity and debt-based financial instruments. In this article, we tackle the question as to whether smaller innovative firms, both in and outside of high-tech industry sectors, do indeed face greater constraints when seeking to access capital from external markets. Our results show that both high-tech and innovation are important determinants of the firms’ demand for external finance, but these effects are more pronounced in equity markets than debt markets. On the supply side of capital markets, being in a high-tech industry sector was relatively unimportant from the point of view of financiers. Rather, being involved in innovative activity was associated with a greater incidence of absolute and partial rationing and also in terms of the general process of applying for finance being substantially more difficult. These findings were more acute for firms in high-tech industry sectors that were also engaged in innovative activity. Our findings also suggest that policy makers need greater clarity and nuance when developing policy responses around high-tech and broader innovation activity which, although they have significant overlap, should not be conflated.

scholarly journals Innovation Strategy of Private Firms

2017 ◽  
Vol 53 (1) ◽  
pp. 1-32 ◽  
Author(s):  
Huasheng Gao ◽  
Po-Hsuan Hsu ◽  
Kai Li
Keyword(s):  
New Technology ◽  
Equity Markets ◽  
Life Cycles ◽  
Innovation Strategy ◽  
Private Firms ◽  
Investment Horizon ◽  
Public And Private ◽  
Public Firms ◽  
Innovation Strategies ◽  
Public Equity

We compare innovation strategies of public and private firms based on a large sample over the period 1997–2008. We find that public firms’ patents rely more on existing knowledge, are more exploitative, and are less likely in new technology classes, while private firms’ patents are broader in scope and more exploratory. We investigate whether these strategies are due to differences in firm information environments, CEO risk preferences, firm life cycles, corporate acquisition policies, or investment horizons between these two groups of firms. Our evidence suggests that the shorter investment horizon associated with public equity markets is a key explanatory factor.

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