A Note on the Persistence of Residual Income

29 Pages Posted: 15 Jun 2011

See all articles by Joachim Landstrom

Joachim Landstrom

Uppsala University, Dept of Business Administration

Date Written: June, 14 2011

Abstract

This paper investigates the behaviour of residual income scaled by beginning of period book value, i.e., residual return on equity (ROE), by performing panel unit root tests as well panel regression tests on Swedish data. Results show that residual return on equity does not follow a random walk, nor is it transitory, yet it is much more transitory than what previous studies indicate. The study also proposes a method to design similar studies such that they can use data from privately held firms.

Keywords: Accounting, Valuation, Arbitrage, No arbitrage, Rational expectations, Abnormal earnings, Residual income, Industry returns, Return on equity

JEL Classification: M41

Suggested Citation

Landstrom, Joachim, A Note on the Persistence of Residual Income (June, 14 2011). Available at SSRN: https://ssrn.com/abstract=1864804 or http://dx.doi.org/10.2139/ssrn.1864804

Joachim Landstrom (Contact Author)

Uppsala University, Dept of Business Administration ( email )

Box 513
Uppsala, 751 20
Sweden

HOME PAGE: http://www.fek.uu.se

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