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Contemporary Accounting Research Vol. 26 No. 1 (Spring 2009) pp. 135â66 © CAAA doi:10.1506/car.26.1.5 Contemporary Accounting Research the volatility of unexpected returns generated by shocks to earnings? Can the generalized Ball-Brown methodology developed in this paper be used to improve extant empirical methodologies and to suggest further lines of research? Our initial analysis addresses these and other issues using a simple time-series model â earnings, âother informationâ, and expected future discount rates are assumed to be loglinear stationary AR(1) processes â that lends itself to reasonably straightforward intuition. Our further analysis generalizes these results by obtaining closed-form solutions for a broad class of (log) linear time-series models. It is remarkable that with elementary matrix manipulation, the results obtained for the simple loglinear stationary AR(1) time-series model extend to loglinear stationary ARMA(p, q), ARIMA(p, d, q) and vector autoregressive (VAR) processes. These generalizations are important because there is an extensive literature on the timeseries properties of accounting earnings showing that, for many ï¬rms, the time series of both annual and quarterly accounting earnings are best described by higher-order time series, such as the ARIMA(p, d, q) type. In what follows, section 2 develops the Ball-Brown metric of information content
Contemporary Accounting Research – Wiley
Published: Mar 1, 2009
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