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Asymmetric mean reversion in corporate profits

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  • Bradley Ewing
  • Mark Thompson

Abstract

This article applies the Enders and Granger (1998) unit root test against the stationary alternative with asymmetric adjustment to after-tax corporate profits. Both the standard Dickey-Fuller (1981) model and the momentum threshold autoregressive (MTAR) model reject the null hypothesis of a unit root; however, asymmetric mean reversion is found with the MTAR model. The findings are consistent with economic theories of entry and exit and traditional competitive macroeconomic models.

Suggested Citation

  • Bradley Ewing & Mark Thompson, 2007. "Asymmetric mean reversion in corporate profits," Applied Economics Letters, Taylor & Francis Journals, vol. 14(13), pages 935-938.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:13:p:935-938
    DOI: 10.1080/13504850600706271
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    References listed on IDEAS

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    7. Pippenger, Michael K & Goering, Gregory E, 1993. "A Note on the Empirical Power of Unit Root Tests under Threshold Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 473-481, November.
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