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Asymmetry and uncertainty in capital formation: an application to oil investment

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  • Klaus Mohn
  • Petter Osmundsen

Abstract

Theories of irreversible investment suggest a negative relation between investment and uncertainty, and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital. We propose an econometric modelling approach to estimate and test the key predictions of modern investment theory, including asymmetric dynamics and various uncertainty indicators. Our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment.

Suggested Citation

  • Klaus Mohn & Petter Osmundsen, 2011. "Asymmetry and uncertainty in capital formation: an application to oil investment," Applied Economics, Taylor & Francis Journals, vol. 43(28), pages 4387-4401.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:28:p:4387-4401
    DOI: 10.1080/00036846.2010.491460
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    2. Dahl, Roy A & Osmundsen, Petter, 2014. "Estimating fluctuations in oil and gas investment," UiS Working Papers in Economics and Finance 2014/19, University of Stavanger.
    3. H. Rajesh Acharya & C. Anver Sadath, 2016. "Energy Price Uncertainty and Investment: Firm Level Evidence from Indian Manufacturing Sector," International Journal of Energy Economics and Policy, Econjournals, vol. 6(3), pages 364-373.
    4. Khalifa, Ahmed & Caporin, Massimiliano & Hammoudeh, Shawkat, 2017. "The relationship between oil prices and rig counts: The importance of lags," Energy Economics, Elsevier, vol. 63(C), pages 213-226.
    5. Dahl, Roy Endré & Lorentzen, Sindre & Oglend, Atle & Osmundsen, Petter, 2017. "Pro-cyclical petroleum investments and cost overruns in Norway," Energy Policy, Elsevier, vol. 100(C), pages 68-78.
    6. Olanipekun, Ifedolapo Olabisi & Alola, Andrew Adewale, 2020. "Crude oil production in the Persian Gulf amidst geopolitical risk, cost of damage and resources rents: Is there asymmetric inference?," Resources Policy, Elsevier, vol. 69(C).
    7. Sunil K. Mohanty & Stein Frydenberg & Petter Osmundsen & Sjur Westgaard & Christian Skjøld, 2023. "Risk factors in stock returns of U.S. oil and gas companies: evidence from quantile regression analysis," Review of Quantitative Finance and Accounting, Springer, vol. 60(2), pages 715-746, February.
    8. Pernille Parmer & Steinar Strøm & Helge Sandvig Thorsen & Inger Ubbe & Bjørnar Andreas Kvinge, 2018. "Investments on the Norwegian Continental Shelf - An Empirical Analysis," CESifo Working Paper Series 7370, CESifo.
    9. Apergis, Nicholas & Ewing, Bradley T. & Payne, James E., 2016. "A time series analysis of oil production, rig count and crude oil price: Evidence from six U.S. oil producing regions," Energy, Elsevier, vol. 97(C), pages 339-349.

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