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The Gettysburg Economic Review, Volume 11, Spring 2019
The Gettysburg Economic Review, Volume 11, Spring 2019
Gettysburg Economic Review
No abstract provided.
Are Price-Earnings Ratios Mean Reverting? An Empirical Study, Kevin Klassen
Are Price-Earnings Ratios Mean Reverting? An Empirical Study, Kevin Klassen
Gettysburg Economic Review
Mean reversion in stock prices is a highly studied area in the financial literature with controversial findings. While some economists have found evidence of mean reverting processes in stock prices, many argue in favor of the Efficient Market Hypothesis which states stock prices are random walk processes. This paper seeks to add to the literature on mean reversion but testing for evidence in price-earnings ratios rather than stock prices. The study employs a robust regression model controlling for company-specific and general market factors that influence price-earnings ratio deviations. After correcting for heteroskedasticity, serial correlation, and unit root processes, the results …