The two-stage optimal investment strategy in Taiwan real estate market

  • 洪 銘儀

Student thesis: Master's Thesis

Abstract

In the real world developers often have to face a high risk investment environment especially in the real estate industry By using a lumpy investment approach developers will lose managerial flexibility They only can determine not to invest right away and defer the investment timing up to the arrival of the optimal time while a multi-stage investment approach allows developers to determine both the optimal timing and proportion in each stage simultaneously In this study we apply the real option approach and extends Dixit and Pindyck’s (1994) framework to resolve the problems of irreversible investment expenditures under uncertainty and determine the optimal investment timing scale and value On the others hand we also compare lumpy or single-stage investment with a two-stage investment strategy and provide new insights to adopt two-stage investment strategy in an environment with substantial uncertainty From our investigations we obtain the following research findings First compared to the lumpy investment employing the two-stage investment strategy in decision-making and determining a proper investment proportion will enhance the value of the developer’s investment and permit the developers to carry out the first-stage investment earlier while the second-stage investment could be later Second when there is substantial upward uncertainty in the environment the developer should defer a large proportion of the first-stage of investment Third when there is substantial upward uncertainty in the environment the effects of a change in the invested proportions do not impact the investment value substantially Finally the contribution of this study is that it proposes a two-stage investment strategy for decision-making to enhance the whole value of investment and provide managerial flexibility to allocate resource appropriately by determining optimal invested proportion and optimal invested time Keywords: Deferability Managerial flexibility Two-stage investment strategy
Date of Award2016 Sep 5
Original languageEnglish
SupervisorYu-Hong Liu (Supervisor)

Cite this

The two-stage optimal investment strategy in Taiwan real estate market
銘儀, 洪. (Author). 2016 Sep 5

Student thesis: Master's Thesis