Tsekrekos, Andrianos E. and Shackleton, Mark B. and Wojakowski, Rafał M. (2012) Evaluating natural resource investments under different model dynamics:managerial insights. European Financial Management, 18 (4). pp. 543-575. ISSN 1354-7798Full text not available from this repository.
We focus on factors that drive the dynamics of commodity prices. We highlight the capital budgeting implications of three highly-cited, nested, multi-factor models for commodity prices that have been successful in empirical investigations. Competing assumptions regarding commodity prices and their convenience yields can account for differences close to 40% on average, and in excess of 60% in cases, in the valuation of typical natural resource investments. These value differences are found to increase with the maturity and the intrinsic value of the investment, and also with the level and the volatility of the resource's convenience yield. Resources such as oil or copper, that are used for production purposes, usually exhibit high and volatile convenience yields; thus our findings should be more relevant for decision-makers in such sectors.
|Journal or Publication Title:||European Financial Management|
|Uncontrolled Keywords:||natural resource investment ; real options ; factor models ; commodity prices ; least-squares Monte Carlo simulation|
|Subjects:||H Social Sciences > HF Commerce > HF5601 Accounting|
|Departments:||Lancaster University Management School > Accounting & Finance|
|Deposited On:||11 Jul 2011 19:36|
|Last Modified:||09 Apr 2014 22:36|
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