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Boundary Conditions for Ratios with Positively Distributed Components

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  • Stuart McLeay

Abstract

This paper describes the statistical properties of the ratio of two positively distributed variables where the numerator is a component of the denominator and where, therefore, the ratio has implicit boundaries of 0 and 1. Johnson's bounded distribution (the SB) is suggested as a model for ratios of this type, and is derived in this paper as a ratio of lognormal variates. An empirical analysis of bounded financial ratios of UK companies confirms the goodness of fit.

Suggested Citation

  • Stuart McLeay, 1997. "Boundary Conditions for Ratios with Positively Distributed Components," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 67-84, January.
    • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:1:p:67-84
    DOI: 10.1111/1468-5957.00095
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    Cited by:

    1. David Ashton & Paul Dunmore & Mark Tippett, 2004. "Double Entry Bookkeeping and the Distributional Properties of a Firm's Financial Ratios," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 583-606.
    2. Stuart McLeay & Maxwell Stevenson, 2009. "Modelling the longitudinal properties of financial ratios," Applied Financial Economics, Taylor & Francis Journals, vol. 19(4), pages 305-318.
    3. David Ashton & Paul Dunmore & Mark Tippett, 2004. "Double Entry Bookkeeping and the Distributional Properties of a Firm's Financial Ratios," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5‐6), pages 583-606, June.
    4. Stuart McLeay & Maxwell Stevenson, 2006. "Modelling the Longitudinal Properties of Financial Ratios of European Firms," The Institute for International Integration Studies Discussion Paper Series iiisdp184, IIIS.

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