2007-01-01Zeitschriftenartikel DOI: 10.2139/ssrn.298048
The investment opportunity set and its proxy variables
Goyal, Vidhan K.
Humboldt-Universität zu Berlin, Wirtschaftswissenschaftliche Fakultät
We use a real options approach to evaluate the performance of several proxy variables for a firm’s investment opportunity set. The results show that, on a relative scale, the market-to-book assets ratio has the highest information content with respect to investment opportunities. Although both the market-to-book equity and the earnings-price ratios are related to investment opportunities, they do not contain information that is not already contained in the market-to-book assets ratio. Consistent with this finding, a common factor constructed from several proxy variables does not improve the performance of the market-to-book assets ratio.
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