A Comment on 'the Information Content of Earnings and Prices: A Simultaneous Equations Approach' by W.H. Beaver, M.L. Mcanally, and C.H. Stinson (1997)

27 Pages Posted: 17 May 1999

See all articles by David E. Allen

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Stuart N. Cruickshank

School of Finance and Business Economics

Nigel Morkel-Kingsbury

RMIT University; Federation University Australia

Date Written: April 1999

Abstract

We comment on a recent paper by Beaver, McAnally and Stinson (1997), drawing attention to the fact that their method ignores some recent developments in time-series econometrics. We apply a bi-variate vector autoregression framework to price and earnings data of listed US companies and the S&P 500 index to capture the dynamics of this system of equations. Although some series are I(1), cointegration does not exist and consequently we are unable to estimate a vector error correction model. However, by applying generalised variance decomposition and generalised impulse response analysis, we conclude that evidence favours a linkage from prices to earnings.

JEL Classification: C32, G12, M41

Suggested Citation

Allen, David Edmund and Cruickshank, Stuart N. and Morkel-Kingsbury, Nigel, A Comment on 'the Information Content of Earnings and Prices: A Simultaneous Equations Approach' by W.H. Beaver, M.L. Mcanally, and C.H. Stinson (1997) (April 1999). Available at SSRN: https://ssrn.com/abstract=163528 or http://dx.doi.org/10.2139/ssrn.163528

David Edmund Allen (Contact Author)

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Stuart N. Cruickshank

School of Finance and Business Economics ( email )

100 Joondalup Drive
Joondalup, WA 6027
Australia

Nigel Morkel-Kingsbury

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia

Federation University Australia ( email )

University Dr.
Mt Helen, Victoria 3350
Australia

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