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The persistence of abnormal returns at industry and firm levels

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Abstract

The present paper proposes a model for the persistence of abnormal returns both at firm and industry levels, when longitudinal data for the profits of firms classiffied as industries are available. The model produces a two- way variance decomposition of abnormal returns: (a) at firm versus industry levels, and (b) for permanent versus transitory components. This variance decomposition supplies information on the relative importance of the fundamental components of abnormal returns that have been discussed in the literature. The model is applied to a Spanish sample of firms, obtaining results such as: (a) there are significant and permanent differences between profit rates both at industry and firm levels; (b) variation of abnormal returns at firm level is greater than at industry level; and (c) firm and industry levels do not differ significantly regarding rates of convergence of abnormal returns.

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  • Juan Carlos Bou & Albert Satorra, 2003. "The persistence of abnormal returns at industry and firm levels," Economics Working Papers 729, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:729
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    Cited by:

    1. Canarella, Giorgio & Miller, Stephen M. & Nourayi, Mahmoud M., 2013. "Firm profitability: Mean-reverting or random-walk behavior?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 76-97.
    2. Eva Ventura & Albert Satorra, 2014. "A multiple indicator model for panel data: an application to ICT area-level variation," Economics Working Papers 1419, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Øystein Gjerde & Kjell Knivsflå & Frode Sættem, 2010. "Evidence on competitive advantage and superior stock market performance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 277-301.
    4. Juan Carlos Bou & Albert Satorra, 2014. "Univariate versus multivariate modeling of panel data," Economics Working Papers 1417, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Goddard, John & Tavakoli, Manouche & Wilson, John O.S., 2009. "Sources of variation in firm profitability and growth," Journal of Business Research, Elsevier, vol. 62(4), pages 495-508, April.
    6. Yim, Andrew & Schröder, David, 2012. "Industry Effects on Firm and Segment Profitability Forecasting: Do Aggregation and Diversity Matter?," MPRA Paper 39190, University Library of Munich, Germany.
    7. Gutiérrez Arnaiz, Óscar & Salas-Fumás, Vicente, 2008. "Performance standards and optimal incentives," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 139-152, March.
    8. Antonelli Cristiano & Crespi, Francesco & Scellato, Giuseppe, 2013. "Path Dependent Patterns of Persistence in Productivity Growth," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201310, University of Turin.

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    More about this item

    Keywords

    Returns of assets; abnormal returns; persistence; two-level; structural equations;
    All these keywords.

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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