The persistence of abnormal returns at industry and firm levels

Juan Carlos Bou and Albert Satorra

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: The present paper proposes a model for the persistence of abnormal returns both at firm and industry levels, when longitudinal data for the profits of firms classiffied as industries are available. The model produces a two- way variance decomposition of abnormal returns: (a) at firm versus industry levels, and (b) for permanent versus transitory components. This variance decomposition supplies information on the relative importance of the fundamental components of abnormal returns that have been discussed in the literature. The model is applied to a Spanish sample of firms, obtaining results such as: (a) there are significant and permanent differences between profit rates both at industry and firm levels; (b) variation of abnormal returns at firm level is greater than at industry level; and (c) firm and industry levels do not differ significantly regarding rates of convergence of abnormal returns.

Keywords: Returns of assets; abnormal returns; persistence; two-level; structural equations (search for similar items in EconPapers)
JEL-codes: C12 C14 C31 C51 M31 (search for similar items in EconPapers)
Date: 2003-11
New Economics Papers: this item is included in nep-com, nep-eec, nep-ent, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:729

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