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
Date Written: April 1999
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: Suggested Citation