Premium
The market premium for the option to close: evidence from Australian gold mining firms
Author(s) -
Kelly Simone
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12181
Subject(s) - value premium , price premium , value (mathematics) , sample (material) , liquidity premium , economics , business , financial economics , cash , cash flow , econometrics , monetary economics , finance , microeconomics , capital asset pricing model , chemistry , chromatography , willingness to pay , machine learning , computer science , market liquidity , liquidity crisis
This study shows the market value of gold mining firms contains a premium for the option to close. The sample uses 41 gold mining producers listed on the Australian Stock Exchange from 1987 to 2013. The premium of the market price over the present value of cash flows is isolated and a pooled cross‐sectional regression tests the degree of association between that premium and theoretical option premiums. The results show market prices incorporate a premium reflecting the option to temporarily close operations. The magnitude of the option premium to close depends on whether firms are out or in the money options.