We examine the ability of auto industry stock returns to forecast quarterly changes in the growth rates of real GDP, consumption, and investment. We nd that auto stock returns are superior to aggregate stock market returns in predicting growth rates of GDP and various forms of consumption. The superior predictive power of auto returns holds for both in-sample and out-of-sample forecasts and has...

This paper considers irreversible investment in competing research projects with uncertain returns under a winner-takes-all patent system. Uncertainty takes two distinct forms: the technological success of the project is probabilistic, while the economic value of the patent to be won evolves stochastically over time. According to the theory of real options uncertainty generates an option value ...

Since the work of George Richardson on the problem of investment co-ordination, the literature has focused on explaining equilibrium in investment games and neglected the problem of how investments are co-ordinated. This paper reports the findings of a case study of the brick industry which used grounded theory techniques to develop a new analysis of investment coordination. Our main findings i...

Using the tools of real-options theory, Farzin, Huisman and Kort (1998) investigate the optimal timing of technology adoption in a model in which there is ongoing technological progress and the "rm's investment decision is irreversible. When the "rm can switch technologies n(R times, Farzin et al. (1998) obtain the surprising result that the criterion for adopting a new technology derived from ...

This paper examines how asset risk impacts corporate investment and financing decisions. We derive a general model that incorporates risk, adjustment cost, and depreciation features of assets-in-place into investment decisions. The model suggests that the risk and adjustment cost of assets-in-place reduce both corporate investment and financing. We empirically test the model in a panel of US fi...

This paper analyzes the value of flexibility in quality choice using a dynamic real-option framework. Firms decide about quality of their products when they enter the market upon incurring a sunk cost. Flexibility in quality choice induces (ceteris paribus) earlier investment, and the value of flexible quality increases with demand uncertainty. We find that a possibility of competitive entry mo...

Investment in toll road normally involves a portfolio of real options. We model a portfolio of real options with cost contingency and government subsidy at the operation stage. We demonstrate that the investment value is highly sensitive to cost and revenue uncertainties. Our numerical example suggests that the investment value of risky project is higher when net income guarantee is used instea...