Some further theoretical and empirical implications regarding the relationship between earnings, dividends and stock prices

Article Abstract:

The study incorporated earnings, dividends and stock prices into a viable economic model. The first stage of the research is to show earnings as a generalized mean reverting process, which showed substantial long term mean reversion as well as weaker evidence for short term mean reversion. A modified Linter (1956) model, which considers a target payout ratio of a firm as a constant proportion to present earnings, has been used to evaluate the relationship between earnings and dividends. The empirical findings of the study indicated that earnings per share levels and changes in earnings per share are significant in accounting returns.

Dividend Policy, Stocks & Other Equity Securities, Stocks, Dividends, Finance, Earnings per share

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Purchasing power parity: modeling and testing mean reversion

Article Abstract:

A model of the mean reversion of exchange rates, based on short-run and long-run exchange data in countries including Japan, Germany, the UK, Italy, France, and Canada, is applied to a purchasing power parity exchange rate. Results confirm earlier conclusions in ascertaining that no cases of mean reversion exist in the short term. It may be concluded that mean reversion is not necessarily linear and that differences in the purchasing power parity rate do not guarantee identical changes in the spot rate.

Economics, Research and Development in the Social Sciences and Humanities, Econometrics, Foreign exchange, Purchasing power

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Modelling mean reversion of asset prices towards their fundamental value

Article Abstract:

The study on mean reversion behavior is extended by developing a model of the fundamental value of a firm as a stochastic process. The geometric Brownian motion is employed in modelling the dynamics of the fundamental value. The asset's cash value is then modelled as a mean reverting Ornstein Uhlenbeck process towards the fundamental value.

Analysis, Stock-exchange, Stock exchanges, Capital market, Capital markets

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