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- Publisher
- Springer Journals
- Copyright
- Copyright © 2007 by Springer Science+Business Media, LLC
- Subject
- Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
- ISSN
- 0924-865X
- eISSN
- 1573-7179
- DOI
- 10.1007/s11156-007-0077-0
- Publisher site
- See Article on Publisher Site
Abstract
The persistence of innovations to accounting earnings per share, EPS, has important implications for equity valuation, yet it remains a largely neglected subject. This paper employs various empirical tests in order to measure the persistence of shocks to EPS for the S&P 500 index. Within the I(0)/I(1) paradigm the empirical evidence rejects the I(1) specification, supporting instead a trend-stationary representation. When fractional orders of integration are considered, the results indicate that the detrended series is long memory (d > 0) and mean reverting (d < 1). The responses decay slowly to zero, albeit 50 quarters after an initial shock the responses remain significantly different from zero. Likewise, the variance ratio evidence suggests that the effect of a shock persists over time spans characteristic of the business cycle.
Journal
Review of Quantitative Finance and Accounting – Springer Journals
Published: Nov 16, 2007