Misvaluation Of Investment Options

Misvaluation of investment options

Misvaluation of Investment Options

@inproceedings{Lyandres2018MisvaluationOI, title={Misvaluation of Investment Options}, author={Evgeny Lyandres and E.

Misvaluation of investment options

V. Matveyev and Alexei Zhdanov}, year={2018} }

We study whether investment options are correctly priced. We build and estimate a real options model of optimal investment in the presence of demand uncertainty.

Misvaluation of investment options

We then classify stocks into undervalued and overvalued based on the difference between observed and model-implied firm values. A long-short strategy that buys undervalued and shorts overvalued stocks generates annualized alphas between 10% and 17%.

2018 UWFC Paper 8 Presentation

This relation is only present in subsamples of firms with high proportions of… CONTINUE READING

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