Decision support for foreign investment strategy under hybrid uncertainty

doi:10.1016/j.eswa.2011.10.007

機構典藏 > College of Business and Management > Department of Management Sciences > Journal Article > Item 987654321/75337

Please use this identifier to cite or link to this item: https://tkuir.lib.tku.edu.tw/dspace/handle/987654321/75337

Title:	Decision support for foreign investment strategy under hybrid uncertainty
Authors:	Chen, Po-yuan;Chang, Horng-jinh
Contributors:	淡江大學管理科學學系
Keywords:	Decision support;Foreign investment;Hybrid uncertainty
Date:	2012-03
Issue Date:	2012-03-20 20:12:24 (UTC+8)
Publisher:	Kidlington: Pergamon
Abstract:	Empirical evidences show that Japan-based companies moved their major operations to the USA due to the currency appreciation of Japanese Yen in 1980s. However, the multinational firms moving their operations abroad still face both the risk of foreign price and the risk of foreign exchange rate. According to the purchasing power parity (PPP) and interest rate parity (IRP), the foreign exchange rate has associations with the relative price and the relative interest rate between two countries. Therefore, when the price and the interest rate evolve stochastically as proposed by many scholars, we can anticipate the randomness of the foreign exchange rate. By integrating these three sources of risks as a hybrid uncertainty, we propose a framework for corporate valuation and investment strategy. We analytically derive corporate value for those multinationals in question and then numerically obtain the real option value by Monte Carlo simulations, based on which we investigate the optimal entry strategy. The sensitivity for corporate value, optimal entry time, and real option value are analyzed. The results suggest a decision support process for foreign investment timing strategy under the hybrid uncertainty. The managerial implication of this work is that the optimal investment strategy for the multinational firms with foreign operations depends on some market and risk factors, as well as correlations among them.
Relation:	Expert Systems with Applications 39(4), pp.4582–4589
DOI:	10.1016/j.eswa.2011.10.007
Appears in Collections:	[Department of Management Sciences] Journal Article

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