Structural Breaks in Financial Ratios: Evidence for Nine International Markets

David Gordon McMillan

    Research output: Contribution to journalArticlepeer-review

    6 Citations (Scopus)

    Abstract

    Financial ratios have recently reached unprecedented levels and despite price falls remain at ahistoric levels. This is at odds with the theoretical present value model. Whilst, several researchers have attempted to reconcile theory and data using fractional integration and nonlinear techniques, an alternate view is that such ratios do not revert to a single point but exhibit a time-variation in their level. This article, tests for and supports, the belief that financial ratios exhibit structural breaks, or level shifts, through time. As such, the present value model does not hold exactly, but needs to accommodate such shifts. This may also explain apparent contradictory findings in long-horizon return predictability regressions performed over different sample periods.
    Original languageEnglish
    Pages (from-to)381-384
    JournalApplied Financial Economics Letters
    Volume3
    Issue number6
    DOIs
    Publication statusPublished - 2007

    Fingerprint

    Dive into the research topics of 'Structural Breaks in Financial Ratios: Evidence for Nine International Markets'. Together they form a unique fingerprint.

    Cite this