The persistence of earnings per share |
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Authors: | Luis A Gil-Alana Rolando F Peláez |
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Institution: | (1) Department of Economics, University of Navarra, Pamplona, Pamplona, 31080, Spain;(2) Finance Department, College of Business, University of Houston-Downtown, Houston, TX 77002, USA |
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Abstract: | The persistence of innovations to accounting earnings per share, EPS, has important implications for equity valuation, yet
it remains a largely neglected subject. This paper employs various empirical tests in order to measure the persistence of
shocks to EPS for the S&P 500 index. Within the I(0)/I(1) paradigm the empirical evidence rejects the I(1) specification, supporting instead a trend-stationary representation. When fractional orders of integration are considered,
the results indicate that the detrended series is long memory (d > 0) and mean reverting (d < 1). The responses decay slowly to zero, albeit 50 quarters after an initial shock the responses remain significantly different
from zero. Likewise, the variance ratio evidence suggests that the effect of a shock persists over time spans characteristic
of the business cycle.
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Keywords: | Persistence Fractional integration Earnings per share |
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