Premium
The Pricing of Oil and Gas: Some Further Results
Author(s) -
MILLER MERTON H.,
UPTON CHARLES W.
Publication year - 1985
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1985.tb05030.x
Subject(s) - econometrics , economics , sample (material) , valuation (finance) , variance (accounting) , petroleum , explanatory power , statistics , mathematics , geology , accounting , chemistry , physics , paleontology , quantum mechanics , chromatography
The Hotelling Valuation Principle (HVP) implies that the unit value of an exhaustible natural resource can be written as a function of its current price, net of extraction costs; other variables such as interest rates have no additional explanatory power. The results of earlier tests using data from 1979–1981 strongly support the HVP. This paper presents a series of follow‐up tests using time‐series cross‐section data covering the period August 1981 to December 1983. Because the variance of petroleum prices in this period was substantially less than in the earlier period, the follow‐up sample proved generally noninformative. The sample also contains some observations on oil and gas royalty trusts. Tests of the HVP using these trust data yielded generally satisfactory results, although—given the limited sample size—the results must be viewed with caution.