Asymmetrical return on equity mean reversion and catering

An-Sing Chen and Shih-Chieh Lin

Journal of Banking & Finance, 2011, vol. 35, issue 2, 471-477

Abstract: Using a momentum threshold autoregression model, we find evidence showing that there is an asymmetrical mean reversion behavior in return on equity (ROE). Results show that the speed of adjustment of ROE towards the long-term mean is slower in the ROE increasing regimes than in the ROE decreasing regimes. Additional results indicate that investor earnings optimism is significantly related to change in abnormal ROE. These results are consistent with predictions from catering theory.

Keywords: Asymmetrical; mean; reversion; Catering; theory; Momentum; threshold; autoregression; model; Return; on; equity (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:2:p:471-477

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