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- Title
Autoregressive Modeling of Earnings-Investment Casuality.
- Authors
BAR-YOSEF, SASSON; CALLEN, JEFFREY L.; LIVNAT, JOSHUA
- Abstract
The purpose of this paper is to empirically test the relationships between corporate earnings and investment. In particular, the study investigates whether knowledge of past investments improves the prediction of future earnings beyond predictions that are based on past earnings alone. Similarly, it investigates whether knowledge of past earnings improves the prediction of future investments beyond knowledge of past investments alone. This is the empirical definition of Granger causality. The empirical results show that the bivariate past series of earnings and investments is superior to the univariate series in predicting future investments but not in predicting future earnings.
- Subjects
CORPORATE profits; BUSINESS forecasting; EARNINGS per share; INVESTMENT analysis; DIVIDEND reinvestment; YIELD to maturity; TIME series analysis; RANDOM walks; EXPECTED returns; CAUSATION (Philosophy)
- Publication
Journal of Finance (Wiley-Blackwell), 1987, Vol 42, Issue 1, p11
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1987.tb02547.x