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Estimating Earnings Trend Using Unobserved Components FrameworkArabinda BasisthaWest Virginia University - College of Business & Economics Alexander KurovWest Virginia University - College of Business & Economics December 15, 2009 Economics Letters, Forthcoming Abstract: Regressions for predicting long-term stock returns often use moving averages of earnings to proxy for unobserved future earnings. We show that the earnings trend can be directly estimated using unobserved components models. Valuation ratios based on the estimated trends improve the fit of stock return predictive regressions.
Number of Pages in PDF File: 10 Keywords: Valuation ratios, Unobserved components model JEL Classification: C22, C51, G12, G14 working papers seriesDate posted: December 9, 2009 ; Last revised: December 17, 2009Suggested Citation |
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