The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling

• 成果类型: Article
• 署名作者: Kellogg, Ryan
• 署名单位: University of Michigan System; University of Michigan; National Bureau of Economic Research
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.104.6.1698
• 发表日期: 2014
• 页码: 1698-1734
• 关键词: options; volatility; demand; price; irreversibility; DYNAMICS; industry; futures; shocks; MODEL

摘要

This paper estimates the response of investment to changes in uncertainty using data on oil drilling in Texas and the expected volatility of the future price of oil. Using a dynamic model of firms' investment problem, I find that: (i) the response of drilling activity to changes in price volatility has a magnitude consistent with the optimal response prescribed by theory, (ii) the cost of failing to respond to volatility shocks is economically significant, and (iii) implied volatility data derived from futures options prices yields a better fit to firms' investment behavior than backward-looking volatility measures such as GARCH.