Abstract
The hypothesis that earnings are mean reverting was suggested 90 years ago and has been extensively tested since then. This paper critically surveys the hitherto literature on earnings mean reversion models sorted according to the method used. The findings signalize that literature still does not provide us with proper information about the causes of earnings behavior. The reasons are mostly either mismatching various sources of earnings changes, mistaking the unknown for known, mistaking the stochastic for regular, introduction of hidden circularity (thus collinearity) or model overspecification.
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This paper is one of the outputs of the University of Economics in Prague, Faculty of Finance and Accounting research project and has been financed by the institutional support VSE IP100040.
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Buus, T. (2019). Review of Models of Transitory Earnings. In: Procházka, D. (eds) Global Versus Local Perspectives on Finance and Accounting. ACFA2018 2018. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-11851-8_18
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