Asymmetric mean reversion in corporate profits

Bradley Ewing and Mark Thompson

Applied Economics Letters, 2007, vol. 14, issue 13, 935-938

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.

Date: 2007
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DOI: 10.1080/13504850600706271

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