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Richard Shockley - Indiana University, Kelley School of Business. Bloomington, IN, US

Richard Shockley Richard Shockley

Associate Professor of Finance | Indiana University, Kelley School of Business

Bloomington, IN, UNITED STATES

Professor Richard Shockley’s research deals with real options, corporate finance, and investment.

Secondary Titles (1)

  • CenterPoint Energy MBA Faculty Fellow



Richard Shockley Publication





Industry Expertise (4)



Financial Services

Capital Markets

Areas of Expertise (6)

Real Options


Corporate Finance


Financial Institutions

International Finance

Accomplishments (4)

Fulbright Fellow

Fulbright U.S. Scholar Program, awarded by the U.S. Department of State

MBA Teaching Excellence Award (professional)

This award is given by the University of Indiana's Kelley School of Business.

Trustees Teaching Award (professional)

This awarded is given by Indiana University.

Kelley Direct Teaching Excellence Award (professional)

This award is given by the University of Indiana's Kelley School of Business.

Education (2)

Indiana University: Ph.D., Finance 1992

University of Virginia: B.S., Commerce 1984

Articles (5)

Valuation of a Developmental Drug as a Real Option

Journal of Applied Corporate Finance

2016 Valuing a capital investment as a real option (or series of options) has advantages over standard DCF valuation when the investment creates the future flexibility to delay, abandon, or expand an element of the project based on the resolution of a major source of uncertainty. The uncertainty is generally dealt with using a “volatility” term that aims to reflect the variability in the future value of the underlying asset. But there are certain situations in which the uncertainty has a second dimension. For example, drugs in development can be abandoned either because of bad technical outcomes (the drug doesn't work) or unfavorable resolutions of market risk (though the drug works, its market potential turns out to be too limited). In an article published earlier in this journal, the authors illustrated the valuation of an early-stage pharma R&D investment using a real options approach in which the market and technical risks were folded together into the volatility parameter. In this article, the authors explain why they have concluded that this is an incorrect approach and then show how to handle market and technical risk as two separate dimensions of risk in valuing an R&D program. The potential use of this technique extends beyond pharma and biotech R&D to any situation in which the outcome of an important uncertainty is independent of the resolution of market risk associated with the underlying asset.

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Real Options Analysis and the Assumptions of Corporate Finance: A Non-Technical Review

Multinational Finance Journal

2010 This paper provides a non-technical presentation of the theoretical foundations of corporate financial decision making and the net present value (NPV) rule. Our objective is to show that the concepts of value and value creation arise from a single, unified framework that is firmly rooted in neoclassical microeconomic theory. This, in turn, allow us to demonstrate that the corporate valuation approach generically known as real options analysis is perfectly justifiable – without further qualification – in any situation when investors want managers to maximize NPV.

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Joint Venture Evolution: Extending the Real Options Approach

Managerial and Decision Economics

2008 Real options theory has emerged as a promising avenue to study joint venture (JV) evolution as a strategic response to managing uncertainty. We extend the real options approach by integrating it with game theory. Such a combined method enriches the valuation functions of each partnering firm and helps to identify the optimal decisions for exercising options in a JV. In our model, each firm's synergy from the joint operation and its knowledge acquisition capability (KAC) can significantly influence the competitive dynamics between partners, potentially affecting how each firm decides to acquire, divest, or dissolve. We employ a new solution technique in real options theory to capture the stochastic process of three factors, and use computer simulation to test the model under varying conditions. The results are stated in five testable propositions, providing a better understanding of the dynamics of a JV. We find that symmetries between partners in synergy or KAC contribute to stability or dissolution of the JV, whereas asymmetries in synergy or KAC make acquisition of the JV assets by one partner desirable. Copyright © 2008 John Wiley & Sons, Ltd.

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A Real Option in a Jet Engine Maintenance Contract,

Journal of Applied Corporate Finance


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Equilibrium "Anomalies"

The Journal of Finance

2003 Many empirical "anomalies" are actually consistent with the single beta capital asset pricing model if the empiricist utilizes an equity-only proxy for the true market portfolio. Equity betas estimated against this particular inefficient proxy will be understated, with the error increasing with the firm's leverage. Thus, firm-specific variables that correlate with leverage (such as book-to-market and size) will appear to explain returns after controlling for proxy beta simply because they capture the missing beta risk. Loadings on portfolios formed on relative leverage and relative distress completely subsume the powers of the Fama and French (1993) returns to small minus big market capitalization (SMB) portfolios and returns to high minus low book-to-market (HML) portfolios factors in explaining cross-sectional returns.

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