CRITICAL REVIEW OF MODELS OF EARNINGS MEAN REVERSION
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F60076658%3A12510%2F22%3A43904855" target="_blank" >RIV/60076658:12510/22:43904855 - isvavai.cz</a>
Result on the web
<a href="https://hrcak.srce.hr/file/395425" target="_blank" >https://hrcak.srce.hr/file/395425</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.32910/ep.73.1.6" target="_blank" >10.32910/ep.73.1.6</a>
Alternative languages
Result language
angličtina
Original language name
CRITICAL REVIEW OF MODELS OF EARNINGS MEAN REVERSION
Original language description
The hypothesis that earnings are mean reverting was suggested 90 years ago and has been extensively tested since then. Expectations of earn- ings' mean reversion (hereinafter "EMR") significantly influence pricing of shares or earnings forecasts. Despite proposals and testing of numer- ous models of EMR, there has been very little inquiry into the meaning of those models in corporate and valuation terms in the academic literature. Therefore, we see such an inquiry as highly desirable. The aim of this paper is to critically review the models of transitory earnings (vice versa EMR), their methodology, practical applicability of their results, and their limita- tions stemming from the characteristics of earnings data. We find that most of the recent models of transitory earnings (EMR) are misspecified in terms of target earnings or reasons of EMR. We also find that EMR is partly caused by cycles in relevant industry or economy, and partly by company-specific processes and accruals. Also, elimination of survivorship bias and use of margins or lower-level profitability like ROI and ROC instead of ROE is worth testing in EMR models.
Czech name
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Czech description
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Classification
Type
J<sub>SC</sub> - Article in a specialist periodical, which is included in the SCOPUS database
CEP classification
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OECD FORD branch
50206 - Finance
Result continuities
Project
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Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace
Others
Publication year
2022
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Ekonomski Pregled
ISSN
0424-7558
e-ISSN
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Volume of the periodical
73
Issue of the periodical within the volume
1
Country of publishing house
HR - CROATIA
Number of pages
24
Pages from-to
131-154
UT code for WoS article
000761157900006
EID of the result in the Scopus database
2-s2.0-85125560305