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The competitive environment hypothesis revisited: non-linearity, nonstationarity and profit persistence

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  • Jesus Crespo Cuaresma
  • Adelina Gschwandtner

Abstract

Much empirical literature dealing with the competitive environment hypothesis tends to find nonstationary behaviour and very high persistence in time series of company profits. Profit time series is modelled using a simple threshold autoregressive model that allows for nonstationary behaviour over subsamples. Using a new dataset consisting of profits for more than 150 US companies over a time period of 50 years, statistical evidence is presented that the high persistence observed in profits when using linear autoregressive models is often due to the misspecification of the data generating process.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 4 ()
Pages: 465-472

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Handle: RePEc:taf:applec:v:38:y:2006:i:4:p:465-472

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  1. Caner,M. & Hansen,B.E., 1998. "Threshold autoregression with a near unit root," Working papers 27, Wisconsin Madison - Social Systems.
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  7. Bruce E. Hansen & Mehmet Caner, 1997. "Threshold Autoregressions with a Unit Root," Boston College Working Papers in Economics 381, Boston College Department of Economics.
  8. Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-98, March.
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Cited by:
  1. Matthew J. Holian & Ali M. Reza, 2010. "The persistence of accounting versus economic profit," Economics Bulletin, AccessEcon, vol. 30(3), pages 2189-2196.
  2. Adelina Gschwandtner, 2005. "Profit persistence in the 'very' long run: evidence from survivors and exiters," Applied Economics, Taylor and Francis Journals, vol. 37(7), pages 793-806.
  3. Adelina Gschwandtner, 2004. "Evolution of Profit Persistence in the US: Evidence from four 20-years periods," Vienna Economics Papers 0410, University of Vienna, Department of Economics.
  4. Jes�S Crespo Cuaresma & Adelina Gschwandtner, 2008. "Tracing The Dynamics Of Competition: Evidence From Company Profits," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 208-213, 04.
  5. Giorgio Canarella & Stephen M. Miller & Mahmoud M. Nourayi, 2012. "Firm Profitability: Mean-Reverting or Random-Walk Behavior?," Working papers 2012-05, University of Connecticut, Department of Economics, revised Oct 2012.
  6. Andrea Vaona, 2010. "On the gravitation and convergence of industry profit rates in Denmark, Finland, Italy and the US," Working Papers 02/2010, University of Verona, Department of Economics.
  7. Adelina Gschwandtner & Jesus Crespo Cuaresma, 2008. "Explaining the persistence of profits: A time-varying approach," Vienna Economics Papers 0806, University of Vienna, Department of Economics.
  8. David Liebeg & Markus S. Schwaiger, 2006. "Determinants of the Interest Rate Margins of Austrian Banks," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 12, pages 104-116, December.
  9. Alfarano, Simone & Förster, Niels & Milaković, Mishael & Mundt, Philipp, 2013. "The real versus the financial economy: A global tale of stability versus volatility," Economics Discussion Papers 2013-8, Kiel Institute for the World Economy.

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