Review of Models of Transitory Earnings

Tomas Buus

A chapter in Global Versus Local Perspectives on Finance and Accounting, 2019, pp 187-197 from Springer

Abstract: Abstract The hypothesis that earnings are mean reverting was suggested 90 years ago and has been extensively tested since then. This paper critically surveys the hitherto literature on earnings mean reversion models sorted according to the method used. The findings signalize that literature still does not provide us with proper information about the causes of earnings behavior. The reasons are mostly either mismatching various sources of earnings changes, mistaking the unknown for known, mistaking the stochastic for regular, introduction of hidden circularity (thus collinearity) or model overspecification.

Keywords: Transitory earnings; Mean reversion; Partial adjustment; Model (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-11851-8_18

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DOI: 10.1007/978-3-030-11851-8_18

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