Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088084 | Journal of Banking & Finance | 2017 | 14 Pages |
Abstract
We study an investment problem in which two asymmetric firms face competition and the regime characterizing the economic condition follows a Markov switching process. We derive the value functions and investment thresholds of the leader and follower. The option value of regime uncertainty is found to be quite important for the investment decision of firms. We also show the relationship between the equity risk premium and the economic cycle that has not been done in previous studies, which proxy economic conditions by the level of demand or other state variables.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Makoto Goto, Katsumasa Nishide, Ryuta Takashima,