Estimating Earnings Trend Using Unobserved Components Framework

10 Pages Posted: 9 Dec 2009 Last revised: 17 Dec 2009

See all articles by Arabinda Basistha

Arabinda Basistha

West Virginia University - College of Business & Economics

Alexander Kurov

West Virginia University - College of Business & Economics

Date Written: December 15, 2009

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.

Keywords: Valuation ratios, Unobserved components model

JEL Classification: C22, C51, G12, G14

Suggested Citation

Basistha, Arabinda and Kurov, Alexander, Estimating Earnings Trend Using Unobserved Components Framework (December 15, 2009). Economics Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1517819 or http://dx.doi.org/10.2139/ssrn.1517819

Arabinda Basistha (Contact Author)

West Virginia University - College of Business & Economics ( email )

Morgantown, WV 26506-6025
United States

Alexander Kurov

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

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