Forecasting profitability and earnings: a study of the UK market (1982–2000)

Authors: Allen, D. E.; Salim, H. M.

Source: Applied Economics, Volume 37, Number 17, 20 September 2005 , pp. 2009-2018(10)

Publisher: Routledge, part of the Taylor & Francis Group

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An approach recently developed by Fama and French (2000) is applied to the study of whether UK company profitability is mean-reverting. A sample of roughly 987 firms per year for a period from 1982–2000 is used, drawn from Datastream. In a simple partial adjustment model convergence towards the mean at a rate of about 25% per year is found. The results are very similar in direction to those of Fama and French (2000) but the results do not display significant non-linearities. The change in profitability appears to be more strongly influenced by dividends in the UK.

Document Type: Research Article


Affiliations: Edith Cowan University, School of Finance and Business Economics, Joondalup Campus, Joondalup WA 6027, Australia

Publication date: September 20, 2005

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