Forecasting profitability and earnings: a study of the UK market (1982-2000)

David Allen and H. M. Salim

Applied Economics, 2005, vol. 37, issue 17, 2009-2018

Abstract: An approach recently developed by Fama and French (2000) is applied to the study of whether UK company profitability is mean-reverting. A sample of roughly 987 firms per year for a period from 1982-2000 is used, drawn from Datastream. In a simple partial adjustment model convergence towards the mean at a rate of about 25% per year is found. The results are very similar in direction to those of Fama and French (2000) but the results do not display significant non-linearities. The change in profitability appears to be more strongly influenced by dividends in the UK.

Date: 2005
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DOI: 10.1080/00036840500244634

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