Further empirical analysis of the time series properties of financial ratios based on a panel data approach

David Peel, Michael Peel and Ioannis Venetis ()

Applied Financial Economics, 2004, vol. 14, issue 3, 155-163

Abstract: A new panel unit root by Chang (Journal of Econometrics, 110, 261-92, 2002) is employed on a set of financial ratios with a view to improving the power of unit root tests when applied to a relatively small number of observations (in the present case 38 annual observations). The test is innovative in that it allows for cross-sectional dependencies and the asymptotic distribution of the test is standard. Although standard Dickey-Fuller tests suggest that individual financial ratio series are nonstationary, panel unit root tests strongly reject the null hypothesis of a joint unit root in the ratios. Taken together the evidence from the proposed new analysis implies strong persistence in the ratios but that their characterization as I(1) processes may be misleading. These findings have important implications for accounting and finance researchers who employ financial ratios as explanatory variables.

Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/0960310042000187342 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:14:y:2004:i:3:p:155-163

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/0960310042000187342

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().