Advanced Search
MyIDEAS: Login to save this paper or follow this series

The persistence of abnormal returns at industry and firm levels

Contents:

Author Info

  • Juan Carlos Bou
  • Albert Satorra

    ()

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econ.upf.edu/docs/papers/downloads/729.pdf
File Function: Whole Paper
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 729.

as in new window
Length:
Date of creation: Nov 2003
Date of revision:
Handle: RePEc:upf:upfgen:729

Contact details of provider:
Web page: http://www.econ.upf.edu/

Related research

Keywords: Returns of assets; abnormal returns; persistence; two-level; structural equations;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1253-65, December.
  2. Robert Jacobson & Gary Hansen, 2001. "Modeling the competitive process," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(4-5), pages 251-263.
  3. Schmalensee, Richard, 1985. "Do Markets Differ Much?," American Economic Review, American Economic Association, American Economic Association, vol. 75(3), pages 341-51, June.
  4. Anita M. McGahan & Michael E. Porter, 2002. "What Do We Know About Variance in Accounting Profitability?," Management Science, INFORMS, INFORMS, vol. 48(7), pages 834-851, July.
  5. Benston, George J, 1985. "The Validity of Profits-Structure Studies with Particular Reference to the FTC's Line of Business Data," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 37-67, March.
  6. Demsetz, Harold, 1979. "Accounting for Advertising as a Barrier to Entry," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 52(3), pages 345-60, July.
  7. Sam Peltzman, 1977. "The Gains and Losses From Industrial Concentration," NBER Working Papers 0163, National Bureau of Economic Research, Inc.
  8. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 1-9, April.
  9. S.A. Lippman & R.P. Rumelt, 1982. "Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 418-438, Autumn.
  10. Mueller, Dennis C, 1977. "The Persistence of Profits above the Norm," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 44(176), pages 369-80, November.
  11. Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(391), pages 375-89, June.
  12. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, American Economic Association, vol. 73(1), pages 82-97, March.
  13. Cubbin, John & Geroski, Paul A, 1987. "The Convergence of Profits in the Long Run: Inter-firm and Inter-industry Comparisons," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(4), pages 427-42, June.
  14. L. Wade, 1988. "Review," Public Choice, Springer, Springer, vol. 58(1), pages 99-100, July.
  15. Schwalbach, Joachim & Gra[beta]hoff, Ulrike & Mahmood, Talat, 1989. "The dynamics of corporate profits," European Economic Review, Elsevier, Elsevier, vol. 33(8), pages 1625-1639, October.
  16. Satorra, Albert, 2002. "Asymptotic Robustness In Multiple Group Linear-Latent Variable Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 18(02), pages 297-312, April.
  17. Dennis Mueller & Burkhard Raunig, 1998. "Heterogeneities within industries and structure-performance models," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 36, Oesterreichische Nationalbank (Austrian Central Bank).
  18. Peter W Roberts, 2001. "Innovation and firm-level persistent profitability: a Schumpeterian framework," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(4-5), pages 239-250.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Yim, Andrew & Schröder, David, 2012. "Industry Effects on Firm and Segment Profitability Forecasting: Do Aggregation and Diversity Matter?," MPRA Paper 39190, University Library of Munich, Germany.
  2. Gjerde, Øystein & Knivsflå, Kjell Henry & Sættem, Frode, 2009. "Evidence on Competitive Advantage and Superior Stock Market Performance," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2009/11, Department of Business and Management Science, Norwegian School of Economics.
  3. Antonelli Cristiano & Crespi, Francesco & Scellato, Giuseppe, 2013. "Path Dependent Patterns of Persistence in Productivity Growth," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201310, University of Turin.
  4. Giorgio Canarella & Stephen M. Miller & Mahmoud M. Nourayi, 2012. "Firm Profitability: Mean-Reverting or Random-Walk Behavior?," Working Papers, University of Nevada, Las Vegas , Department of Economics 1202, University of Nevada, Las Vegas , Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:729. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.