The competitive environment hypothesis revisited: Nonlinearity, nonstationrity and profit persistence
Much empirical lierature dealing with the competitive environment hypothesis tends to find nonstationary behaviour and very high persistence in time series of company profits. We model profit time series using a simple time series model that allows for nonstationary behavior over subsamples, but overall mean reversion. Using a new dataset constisting of profits for more than 150 US companies over a time period of 50 years, we present statistical evidence that the high persistence observed in profits when using linear autoregressive models is often due to the misspecification of the data generating process.
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.:
- 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,"
Econometric Society, vol. 69(2), pages 473-98, March.
- Alan M. Taylor, 2000. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," NBER Working Papers 7577, National Bureau of Economic Research, Inc.
- Caner,M. & Hansen,B.E., 1998.
"Threshold autoregression with a near unit root,"
27, Wisconsin Madison - Social Systems.
- P. Geroski, 1998.
"An Applied Econometrician's View of Large Company Performance,"
Review of Industrial Organization,
Springer, vol. 13(3), pages 271-294, June.
- Geroski, Paul A, 1998. "An Applied Econometrician's View of Large Company Performance," CEPR Discussion Papers 1862, C.E.P.R. Discussion Papers.
- Yoosoon Chang, 2000.
"Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency,"
CIRJE-F-85, CIRJE, Faculty of Economics, University of Tokyo.
- Chang, Yoosoon, 2002. "Nonlinear IV unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 110(2), pages 261-292, October.
- Chang, Yoosoon, 2002. "Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency," Working Papers 2000-08, Rice University, Department of Economics.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Goddard, J. A. & Wilson, J. O. S., 1999. "The persistence of profit: a new empirical interpretation," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 663-687, July.
- Glen, Jack & Lee, Kevin & Singh, Ajit, 2001. "Persistence of profitability and competition in emerging markets," Economics Letters, Elsevier, vol. 72(2), pages 247-253, August.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Mueller, Dennis C, 1977. "The Persistence of Profits above the Norm," Economica, London School of Economics and Political Science, vol. 44(176), pages 369-80, November.
- Bruce E. Hansen & Mehmet Caner, 1997.
"Threshold Autoregressions with a Unit Root,"
Boston College Working Papers in Economics
381, Boston College Department of Economics.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
- Erdem Basci & Mehmet Caner, 2005.
"Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a new Threshold Unit Root Test,"
- Basci Erdem & Caner Mehmet, 2005. "Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a New Threshold Unit Root Test," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-21, December.
- Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, vol. 98(391), pages 375-89, June.
When requesting a correction, please mention this item's handle: RePEc:vie:viennp:0316. 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: (Paper Administrator)
If references are entirely missing, you can add them using this form.