Replication data for: The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling
Principal Investigator(s): View help for Principal Investigator(s) Ryan Kellogg
Version: View help for Version V1
| Name | File Type | Size | Last Modified |
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| AER-2012-0151_Replication | 12/06/2019 04:20:PM | ||
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text/plain | 14.6 KB | 12/06/2019 11:20:AM |
Project Citation:
Kellogg, Ryan. Replication data for: The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling. Nashville, TN: American Economic Association [publisher], 2014. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-12-06. https://doi.org/10.3886/E116127V1
Project Description
Summary:
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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: (1) the response of drilling activity to changes in price volatility has a magnitude consistent with the optimal response prescribed by theory, (2) the cost of failing to respond to volatility shocks is economically significant, and (3) implied volatility data derived from futures options prices yields a better fit to firms' investment behavior than backward-looking volatility measures such as GARCH.
Scope of Project
JEL Classification:
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C58 Financial Econometrics
D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
G13 Contingent Pricing; Futures Pricing; option pricing
G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
Q31 Nonrenewable Resources and Conservation: Demand and Supply; Prices
C58 Financial Econometrics
D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
G13 Contingent Pricing; Futures Pricing; option pricing
G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
Q31 Nonrenewable Resources and Conservation: Demand and Supply; Prices
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