The Components of Accounting Ratios as Co-integrated Variables
AbstractTime series of accounting variables may often be non-stationary, i.e. they have a unit root, as in the common example of a random walk. This can lead to spurious results in time series regression analysis which uses such variables. The problem is overcome if the variables are co-integrated. This paper examines and tests the proposition that, where the variables are expressed in logarithmic form, calculating a ratio may capture the effects of co-integration. Thus, accounting ratios (calculated in logarithmic form) might be stationary, and therefore exempt from the econometric pathology associated with their component variables. Copyright Blackwell Publishers Ltd 1999.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.
Volume (Year): 26 (1999-11)
Issue (Month): 9-10 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X
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- Giorgio Canarella & Stephen M. Miller & Mahmoud M. Nourayi, 2012.
"Firm Profitability: Mean-Reverting or Random-Walk Behavior?,"
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- Win Chou & Dominica Lee, 2005. "Panel Cointegration Analysis of Audit Pricing Model," Review of Quantitative Finance and Accounting, Springer, vol. 24(4), pages 423-439, June.
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