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The Components of Accounting Ratios as Co-integrated Variables

  • Geoffrey Whittington

    (Faculty of Economics and Politics, University of Cambridge,)

  • Mark Tippett
Registered author(s):

    Time 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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    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 26 (1999-11)
    Issue (Month): 9-10 ()
    Pages: 1245-1273

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    Handle: RePEc:bla:jbfnac:v:26:y:1999-11:i:9-10:p:1245-1273
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